Question

ents is true concerning the consumption function et e n between ale Ince ction lies above the 45-degree line, then that is independent of the level of disposable income is a. It alopes upward. b. Ito alope equals the MC. It represents the direct positive relation naumption spending and the level of real If the consumption function lies above saving is positive. e. All of the above. 9. Consumption spending that is independent of the known as: a marginal consumption. b. transitory consumption. c. permanent consumption. d. relative consumption. e. autonomous consumption. 10. If people expect prices to fall in the future, a their consumption function in the present will shift downward b. their consumption function in the present will shift upward. c. their consumption function in the present will be unchanged. d. they will increase their current levels of consumption by moving up along their consumption functions. e. they will decrease their current levels of consumption by moving down along their consumption functions. 11. The consumption function will shift for all of the following reasons except: a. a change in a household's real assets. b. a change in interest rates. c. expectations of price changes. d. changes in a household's disposable incomes. e changes in taxation policy. - 12. Which one of the following changes is consistent with a change in an economy consumption function from C = $500 billion + 0.80Y to C - $700 billion + 0. a. An increase in disposable income taxes. b. An increase in interest rates c. A decrease in permanent disposable income. d. An increase in wealth. e. An increase in savings.

Answer 1

7) The relationship between the consumption expenditure and disposable income is given by the consumption function. Therefore, option d) is correct.

8) All the options are true. Therefore, option e) is correct.

9) consumption spending not dependent on disposable income is the autonomous consumption. It occurs even when income is 0. Therefore, option e) is correct.

10) If prices are expected to fall, people would decrease their present consumption and the consumption function will shift downward. Therefore, option a) is correct.

11) Changes in disposable income will not shift consumption curve, but there will be a movement along the curve. Therefore, option d) is correct.

12) Question incomplete