Question

In the income-Expenditures model, the size of the mpc is assumed to be:

Group of answer choices

Negative (because of net taxes).

greater than zero, but less than one.

typically greater than one (especially for college students).

none are correct

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Question 15 1 pts

If Kojak's mpc is 0.80, this means that he will:

Group of answer choices

break even when his disposable income is $8000

save two-tenths of any level of income.

spend eight-tenths of any level of disposable income.

spend eight-tenths of any increase (as in change) in disposable income.

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Question 16 1 pts

The wipe-out of roughly $16 trillion in household wealth during the Great Recession created a negative "media-wealth effect"; as applied to the Income-Expenditures model, this is shown by

Group of answer choices

a movement along the consumption function, because wealth is the same thing as income

a downward shift of the consumption function.

an upward shift in the consumption function.

nothing at all--changes in wealth don't affect consumption, only income does

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Question 17 1 pts

The difference between consumption expenditures and disposable income is:

Group of answer choices

equal to savings.

equal to saving.

always negative.

equal to the amount of taxes paid.

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Question 18 1 pts

The fraction of an increase in (as in "change in') income that is saved is referred to as the

Group of answer choices

marginal propensity to consume.

marginal propensity to save.

autonomous investment

average propensity to save.

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Question 19 1 pts

The slope of the aggregate expenditures curve/function is equal to the marginal propensity to consume.

Group of answer choices

True

False

Answer 1

QUESTION 14

In the income-expenditure model, the mpc refers to the fraction of income that is consumed by the consumer for any increase in disposable income. Thus must be a value between 0 and 1. That is if mpc=0, the consumer consumes 0 fractions of income and for mpc=1, the consumer consumes all of his income.

Given the choices:

• mpc can never be negative. Because consumers can not consume a negative fraction of their increased income.
• Mpc lies between zero to 1. So it is greater than zero and less than one.
• Mpc cannot be greater than 1, the consumer cannot consume more than 100% of their increased income.
• Mpc lies between zero to 1 is correct.

Therefore, the correct option is: greater than zero, but less than one.

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QUESTION 15

If the mpc=0.8 then the consumer consumes 80% of increased disposable income.

Given the choices:

• The consumer breaks even if the consumption is equal to income. The mpc refers to the fraction that the consumer consume for every dollar rise in disposable income.
• If the consumer saves 2/10th of their income, the consumer has an average propensity to save as 0.2. This is not similar to having mpc=0.8.
• If the consumer spends 8/10 of his income he has an average propensity to consume as 0.8. This is not equal to consuming at the marginal or mpc=0.8
• If the consumer has mpc=0.8, they spend 8/10th or 80% of their increase in disposable income.

Therefore, the correct option is: spend eight-tenths ….. disposable income.

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QUESTION 16

Consumption of a consumer depends on his disposable income and his accumulated wealth. If the wealth of the consumer decreases the consumption decreases for every level of income and vice versa.

Given the options:

• A movement along the consumption function occurs when the income of the consumer changes. With higher income consumer consumes more and vice versa.
• As wealth decreases, the consumption of the consumer decreases for every income level. Then the consumption function shifts downward.
• The consumption function shifts down reflating a fall in consumption given an income level.
• Consumption not only depends on income but also upon the accumulated wealth. So fall in wealth implies a fall in consumption.

Therefore, the correct option is: a downward shift in the consumption function.

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QUESTION 17

The disposable income is given as YD=Y-T. The consumer uses this after-tax income to either save or consume. Therefore, YD=C+S and YD-C=S.

Given the option:

• YD-C=S or savings
• YD-C=S or savings
• YD-C is not always negative.
• Taxes paid is the difference between YD and actual Y.

Therefore, the correct option is: equal to savings.

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QUESTION 18

In the income-expenditure model, the mpc refers to the fraction of income that is consumed by the consumer out of any increase in disposable income. As the consumer either saves or consumes, then out of every unit increase in income a fraction will be consumed, and rest will be saved. Then the faction of an increase in income that is saved is called the marginal propensity to save or MPS.

Given the options:

• The marginal propensity to consume or mpc is the fraction of income that is consumed by the consumer out of any increase in disposable income. On the other hand, MPS is a marginal propensity to save and is the fraction of income that is saved by the consumer out of any increase in disposable income.
• MPS is a marginal propensity to save and is the fraction of income that is saved by the consumer out of any increase in disposable income.
• Autonomous investment is the level of investment that does not change with income.
• The average propensity to save is the fraction of total savings in total income or S/Y.

Therefore, the correct option is: marginal propensity to save.

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QUESTION 19

The slope of the expenditure function denotes the change in expenditure due to a change in income. Given in a simple economy with no government and AE=C+I, the slope of AE is the marginal propensity to consume or mpc.

Therefore, the correct option is: TRUE