Question

4. The marginal propensity to consume is the:

a) amount consumed out of an additional dollar of income.

b) ratio of consumption to income.

c) amount available for consumption after precautionary saving.

d) ratio of consumption to wealth.

5. According to the life cycle hypothesis, if a consumer wants equal consumption in every year, and the interest rate is 0, there are 40 years until retirement, and 60 years of life remaining, then the marginal propensity to consume out of income equals:

a) 0.016

b) 0.4

c) 0.6

d) 0.67

6. According to the permanent income hypothesis, if consumers receive a one-time income bonus, then they will:

a) save most of it in the current year.

b) spend most of it in the current year.

c) spend one half of it and save one half of it in the current year.

d) not alter their consumption or saving in the current year.

Answer 1

Ans4) the correct option is a) amount consumed out of an additional dollar of income.

Ans5) the correct option is d) 0.67

Ans6) the correct option is a) save most of it in the current year.