Question

1. According to Keynesian theory, the primary determinant of the level of consumption and saving in the economy is the: a. level of investment. c. level of prices. b. level of income. d. interest rate. 2. If a family's MPC is. 7, it is: a. spending 70 percent of its income on consumer goods. b. necessarily dissaving. c. spending seventenths of any increment to its income d. operating at the breakeven point. The size of the MPC is assumed to be: less than zero. b. greater than one. c. greater than zero, but less than one. d. two or more. In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the: a. Keynes effect. b. interest-rate effect. c. wealth effect. d. multiplier effect. Other things being equal, if the interest rate falls, investment: a. is likely to decrease. b. is likely to increase. c. is not likely to change. d. may increase, decrease, or stay the same. 6. The significance of the 45-degree line in studying demand side equilibrium is that a. the line shows the points of consumer satisfaction. b. the distance of each point on the line from the horizontal and vertical axes are equal. c. the line shows the points where consumption is zero. d. the sum of saving and consumption is maximized.

Answer 1

1) select option B. Income determines disposable income and disposable income determine consumption and saving

2) option C is correct. because the marginal propensity to consume measures the increase in consumption due to increase in income, (can also measure the decrease in consumption due decrease in income) 0.7 value of MPC means 70% of the increased income is consumed

3) option C is correct. this is because either the increased income is entirely consumed which means MPC will be one or it will not be consumed which means MPC will be zero

4) option C is correct

5) option B is correct

6) option B is correct