Question

The relationship between consumption and disposable income is such that as

Group of answer choices

consumption rises, disposable income falls

disposable income rises, consumption falls

disposable income rises, consumption rises

disposable income rises, saving falls

The federal government’s principal tool in altering consumer spending is

Group of answer choices

changing corporate taxes

changing federal sales taxes

changing unemployment insurance benefits

changing personal income taxes

The difference between disposable income and consumption spending is

Group of answer choices

transfer payments

personal taxes

saving

personal investment

The relationship between consumer spending and disposable income is called the

Group of answer choices

consumption function

income function

marginal income function

taxation function

Answer 1

The consumption function can be written as C= a+ b(Y-T)

where a is the autonomous consumption expenditure, b is the marginal propensity to consume and (Y-T) is the disposable income where Y is the income level and T is taxes. Now as disposable income increases (Y-T) will increase and consumption will also increase. Hence the answer will be:

disposable income rises, consumption rises

The federal government’s principal tool in altering consumer spending is:

changing personal income taxes

As the government change the personal income tax level, disposable income will change and hence consumption will change.

As we know that the consumption plus saving is equals to disposable income. Hence the difference between disposable income and consumption spending is:

saving.

As we know that the consumption function is C= a+ b(Y-T), Hence the relationship between consumer spending (C) and disposable income (Y-T) is called the

Consumption spending.