15 the Consumption Function - Assignment Essays

question

1. Spend it (Consumption = C)
2. Save it (Saving = S)
3. Pay taxes (Taxes = T)

answer

three things to do with income (Y)

question

C+S+T

answer

Income (Y)=

question

Income available after paying taxes

answer

DISPOSABLE INCOME: Yd

question

Y-T=C+S

answer

Disposable Income (Yd)=

question

answer

How many things can you do with disposable income?

question

1. Spend it (consumption = C)
2. Save it (saving = S)

answer

2 things you can do with disposable income

question

Consumption Function

answer

Expresses consumption spending as a function of disposable income

Holding all other variables constant

question

Wealth

Expected future income

Expected inflation rates

Level of interest rates

answer

Other variables also influence the level of consumption
(4)

question

WEALTH (OR NET WORTH):

answer

Value of what you own minus what you owe

question

Income

answer

Amount you earn in a given time period

question

wealth

answer

what you have saved over your lifetime

question

income

answer

Consumption spending increases as ______ increases

question

true

answer

The relationship between consumption and income is close to linear, t/f

question

increases

answer

Slope of C = f(Y) decreases as income _____.

question

increases

answer

Consumption spending (C) increases as GDP ________.

question

consumption function for us economy

answer

C = f(GDP) = f(Y)

question

GDP

answer

aggregate income (Y) in us economy=

question

true

answer

Historically, the relationship has been almost exactly linear for the consumption function for us economy (t/f)

question

true

answer

Frequently, we express C as a function of Y, rather than Yd for consumption function for us economy (t/f)

question

autonomous consumption

answer

Intercept (value of C when Yd=0) represents:

question

change in c/change in Yd

answer

Slope of consumption function=

question

marginal propensity to consume

answer

slope of consumption function (change in c/change in yd) represents

question

autonomous consumption

answer

Consumption spending that does not depend on the level of income (or GDP)

question

autonomous spending

answer

Any spending that does not depend on the level of income or GDP:

Consumption
Investment
Government
Foreign spending

question

MARGINAL PROPENSITY TO CONSUME

answer

The proportion of an increase in income that is spent by consumers

question

induced consumption

answer

the increase in consumption spending caused (or induced) by an increase in income

question

intercept

answer

A change in the ______ causes the consumption function to shift parallel to itself with no change in the slope.

question

-An increase in wealth, such as a rise in the stock market
-A decrease in interest rates which makes borrowing less expensive
-An increase in expected future income such as a job promotion

answer

Some factors which can cause the consumption function to shift upward (3)

question

Some factors which can cause the consumption function to shift upward

answer

-An increase in wealth, such as a rise in the stock market
-A decrease in interest rates which makes borrowing less expensive
-An increase in expected future income such as a job promotion

question

Average propensity to consume

answer

Total consumption spending/ Total income

question

C/Yd

answer

APC=

question

consumption

answer

The APC tells us the proportion of our entire disposable income that has been spent on _________.

question

increase

answer

The MPC tells us the proportion of any _______ in our disposable income that will be spent on consumption

question

decrease

answer

IF THE CONSUMPTION FUNCTION IS A STRAIGHT LINE, THE APC _______ AS Yd INCREASES.

question

The line representing the consumption function

answer

shows the amount of desired consumption spending associated with any level of disposable income.

question

true

answer

The 45 degree line is the locus of all points such that the value on the vertical axis equals the value on the horizontal axis. (t/f)

question

45 line

answer

C=Yd where consumption function intersects the:

question

exceeds income

answer

Suppose a point on the consumption function lies ABOVE the 45 degree line.

Then C > Yd.

This means that consumption ______ _______

question

low, dissave

answer

Suppose C exceeds disposable income
This tends to occur when income is _____.
These families _______.

question

exceeds, high

answer

Suppose a point on the consumption function lies BELOW the 45 degree line.
Then C < Yd.
Thus, income _______ consumption.
This tends to occur when income is _______.

question

equals, break even

answer

Suppose a point on the consumption function lies ON the 45 degree line.
Then C = Yd
This means that income ______ consumption.
These families just _______.

question

constant

answer

IF THE CONSUMPTION FUNCTION IS A STRAIGHT LINE, THE MPC IS ___________

1 of 42

question

1. Spend it (Consumption = C)
2. Save it (Saving = S)
3. Pay taxes (Taxes = T)

answer

three things to do with income (Y)

question

C+S+T

answer

Income (Y)=

question

Income available after paying taxes

answer

DISPOSABLE INCOME: Yd

question

Y-T=C+S

answer

Disposable Income (Yd)=

question

answer

How many things can you do with disposable income?

question

1. Spend it (consumption = C)
2. Save it (saving = S)

answer

2 things you can do with disposable income

question

Consumption Function

answer

Expresses consumption spending as a function of disposable income

Holding all other variables constant

question

Wealth

Expected future income

Expected inflation rates

Level of interest rates

answer

Other variables also influence the level of consumption
(4)

question

WEALTH (OR NET WORTH):

answer

Value of what you own minus what you owe

question

Income

answer

Amount you earn in a given time period

question

wealth

answer

what you have saved over your lifetime

question

income

answer

Consumption spending increases as ______ increases

question

true

answer

The relationship between consumption and income is close to linear, t/f

question

increases

answer

Slope of C = f(Y) decreases as income _____.

question

increases

answer

Consumption spending (C) increases as GDP ________.

question

consumption function for us economy

answer

C = f(GDP) = f(Y)

question

GDP

answer

aggregate income (Y) in us economy=

question

true

answer

Historically, the relationship has been almost exactly linear for the consumption function for us economy (t/f)

question

true

answer

Frequently, we express C as a function of Y, rather than Yd for consumption function for us economy (t/f)

question

autonomous consumption

answer

Intercept (value of C when Yd=0) represents:

question

change in c/change in Yd

answer

Slope of consumption function=

question

marginal propensity to consume

answer

slope of consumption function (change in c/change in yd) represents

question

autonomous consumption

answer

Consumption spending that does not depend on the level of income (or GDP)

question

autonomous spending

answer

Any spending that does not depend on the level of income or GDP:

Consumption
Investment
Government
Foreign spending

question

MARGINAL PROPENSITY TO CONSUME

answer

The proportion of an increase in income that is spent by consumers

question

induced consumption

answer

the increase in consumption spending caused (or induced) by an increase in income

question

intercept

answer

A change in the ______ causes the consumption function to shift parallel to itself with no change in the slope.

question

-An increase in wealth, such as a rise in the stock market
-A decrease in interest rates which makes borrowing less expensive
-An increase in expected future income such as a job promotion

answer

Some factors which can cause the consumption function to shift upward (3)

question

Some factors which can cause the consumption function to shift upward

answer

-An increase in wealth, such as a rise in the stock market
-A decrease in interest rates which makes borrowing less expensive
-An increase in expected future income such as a job promotion

question

Average propensity to consume

answer

Total consumption spending/ Total income

question

C/Yd

answer

APC=

question

consumption

answer

The APC tells us the proportion of our entire disposable income that has been spent on _________.

question

increase

answer

The MPC tells us the proportion of any _______ in our disposable income that will be spent on consumption

question

decrease

answer

IF THE CONSUMPTION FUNCTION IS A STRAIGHT LINE, THE APC _______ AS Yd INCREASES.

question

The line representing the consumption function

answer

shows the amount of desired consumption spending associated with any level of disposable income.

question

true

answer

The 45 degree line is the locus of all points such that the value on the vertical axis equals the value on the horizontal axis. (t/f)

question

45 line

answer

C=Yd where consumption function intersects the:

question

exceeds income

answer

Suppose a point on the consumption function lies ABOVE the 45 degree line.

Then C > Yd.

This means that consumption ______ _______

question

low, dissave

answer

Suppose C exceeds disposable income
This tends to occur when income is _____.
These families _______.

question

exceeds, high

answer

Suppose a point on the consumption function lies BELOW the 45 degree line.
Then C < Yd.
Thus, income _______ consumption.
This tends to occur when income is _______.

question

equals, break even

answer

Suppose a point on the consumption function lies ON the 45 degree line.
Then C = Yd
This means that income ______ consumption.
These families just _______.

question

constant

answer

IF THE CONSUMPTION FUNCTION IS A STRAIGHT LINE, THE MPC IS ___________

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