Question

1.) The consumption function is associated with   A. John Maynard Keynes.   B. Karl Marx.   C. Milton Friedman.   D. Adam Smith.

2.) Who made these statements? "Conspicuous consumption of valuable goods is a means of reputability to the gentlemen of leisure." "With the exception of the instinct of self-preservation, the propensity for emulation is probably the strongest and most alert and most persistent of the economic motives proper".   A. John Maynard Keynes   B. Milton Friedman   C. Murray Weidenbaum   D. Thorstein Veblen

3.) Saving is negative in each case except   A. when the C line is below the 45-degree line.   B. when there is dissaving.   C. at very low levels of disposable income.   D. when the APC is greater than one.

4.) Which of these relations is correct?   A. APC - APS = 1   B. MPC + MPS = 1   C. APC + MPC = 1   D. 1 + MPC = MPS

5.) According to _______________, if you suddenly inherited a large sum of money, you would spend only a small part of your inheritance right away.   A. the paradox of thrift   B. the permanent income hypothesis   C. Thorstein Veblen's Theory of the Leisure Class   D. the theory of the multiplier
6.) According to Friedman's "permanent income hypothesis,"   A. Consumption today is based on income today.   B. Consumption for future periods is based on today's income.   C. Income is never permanent because of the government's ability to tax.   D. Consumption depends on a person's expected income stream over time.

   7.) In the above graph, saving is negative below a disposable income of   A. 0.   B. 2500.   C. 3000.   D. 3500.

   8.) In the above graph, when disposable income is 6000, C is   A. 0.   B. 2100.   C. 3900.   D. 4500.

   9.) In the above graph, when disposable income is 6,000 savings is   A. -2100.   B. 0.   C. 2100.   D. 3900.
   10.) In the above graph, when disposable income is 4000, APS is about   A. 0.45   B. 0.34   C. 0.23   D. 0.12

   11.) In the above graph, the MPC is about   A. 0.10   B. 0.15   C. 0.20   D. 0.25

   12.) In the above graph, when disposable income is 3500, induced consumption is   A. -500.   B. 0.   C. 500.   D. 750.

13.) In the above graph, when disposable income is 2500, C is   A. 0.   B. 1000.   C. 2000.   D. 2500.



14.) In the above graph, when disposable income is 1250, saving is   A. -1000.   B. -500.   C. 0.   D. 500.


15.) Using the above schedule, how much is autonomous consumption when disposable income is $800 billion?   A. 0     B. $200 billion   C. $400 billion   D. $600 billion




16.) Using the above schedule, how much is the marginal propensity to save when disposable income rises from $400 billion to $600 billion?   A. .25   B. .5   C. .75   D. 1.0



17.) Using the above schedule, how much is the average propensity to consume when disposable income is $800 billion?   A. 0   B. .25   C. .5   D. .75



18.) Using the above schedule, how much is the marginal propensity to consume when disposable income rises from 0 to $1 trillion?   A. 0   B. .25   C. .5   D. .75

19.) For levels of disposable income to the left of the point where consumption intersects the 45-degree line   A. Saving is negative.   B. Disposable income exceeds consumption.   C. Saving equals disposable income.   D. Consumption equals disposable income.

20.) Autonomous consumption is NOT influenced by   A. Aggregate household wealth.   B. Expectations of future income and wealth.   C. Aggregate household debt.   D. Disposable income.

21.) When the APC is greater than one,   A. the APS is negative.   B. the APS is zero.   C. the APS is positive.   D. the APS may be positive, zero or negative.

22.) If the APC is .6, we consume   A. 4 percent of our income.   B. 6 percent of our income.   C. 40 percent of our income.   D. 60 percent of our income.

   23.) In the above graph, when disposable income is 2000, consumption is   A. 2000.   B. 2500.   C. 3000.   D. 3500.

   24.) In the above graph, when disposable income is 2,000, savings is   A. 2,000.   B. 1,500.   C. 0.   D. -1,500.

25.) Conspicuous consumption   A. was a phrase coined by Thorstein Veblen.   B. is a way the wealthy, among others, advertise their wealth.   C. was written about in The Theory of the Leisure Class.   D. All the choices are true.

26.) Autonomous consumption is   A. that part of consumption that rises or falls with changes in disposable income.   B. the minimum that people will spend even if disposable income is zero.   C. the amount people will spend when the C line crosses the 45-degree line.   D. the amount people will spend when income is equal to consumption.




27.) Using the above schedule, what is the MPC?   A. 0.17   B. 0.12   C. 0.83   D. 0.75




28.) Using the above schedule, what is the level of consumption when disposable income is $61,000?   A. $9,000   B. $7,000   C. $49,000   D. $52,000

   29.) Using the above graph, when disposable income is 2000, how much is saving?   A. -700   B. 2700   C. 1300   D. 700


   30.) Using the above graph, at what level of disposable income is saving 0?    A. 5000   B. 4000   C. 3000   D. 2000

Answer 1

Ans 1.) The consumption function is associated with John Maynard Keynes. We often address it as Keynesian consumption function. It says, Consumption, C = + bY_d, where, = autonomous consumption and b = marginal propensity to consume

Hence, option A is correct.

Ans 2) This is a statement of Thorstein Veblen.

Hence, option D is correct.

Ans 3) Saving is negative in each case except  when the C line is below the 45-degree line.

When there is dissaving, it means that consumption is more than income earned during a period. So, saving is negative in this case. Hence, option B is incorrect.

At very low levels of disposable income, C line is higher tha 45-degree line i.e., consumption is higher than disposable income. So, savings is negative. Hence, option C is incorrect.

When the APC is greater than one, it means

C/Y > 1

or, C>Y

or, Y-C<0

or, S<0

So, savings is negative in this case. hence, option D is also incorrect.

So, option A is correct.

Ans 4) Marginal propensity to consume is one misus marginal propensity to save. MPC shows the change in consumption due to an additional unit of income. The rest of that additional unit of income s to be saved and is said to be marginal propensity to save, MPS.

MPC = 1- MPS

or, MPC + MPS = 1

Hence, option B is correct.