EC140 Lecture Notes - Lecture 4: Autonomous Consumption, Consumption Function, Opportunity Cost

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9 Mar 2019

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Gdp measured in expenditure is made up of: Ae = c + i + g + (x - im) Autonomous expenditure does not change when income changes. Money you would spend no matter what happens, does not change depending on how much you earn, can change just not because of income, the amount you spend if your income was zero. People spend a larger portion of their income when they are poorer. Equals b in our desired consumption equation c = a + b x yd. Graphing consumption: 45 degree line shows where c = yd, if c = yd, s = 0, mpc = slope. The savings function: savings may be positive or negative. S = -a + (1 - b) x yd: average propensity to save (aps, marginal propensity to save (mps) Changes in household wealth increases in wealth shift the consumption function up.

Related Questions

Question 1

Which of the following describes the relationship between the change in inventories and aggregate expenditure?

A.	Aggregate expenditure equals the change in inventories minus GDP.
B.	The change in inventories equals GDP divided by aggregate expenditures.
C.	Aggregate expenditures equals GDP divided by the change in inventories.
D.	Aggregate expenditures equals GDP minus the change in inventories.
E.	The change in inventories equals GDP multiplied by aggregate expenditure.

1 points

Question 2

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?

A.	Disposable income and consumption fall by $10 billion
B.	Disposable income and consumption rise by $10 billion
C.	Disposable income rises by $10 billion and consumption rises by $8 billion
D.	Disposable income falls by $10 billion and consumption falls by $8 billion
E.	Disposable income rises by $10 billion and consumption falls by $8 billion

1 points

Question 3

If aggregate expenditure at a particular level of income is less than output,

A.	output will increase
B.	output will decrease
C.	output will remain the same
D.	output will rise slightly and then level off
E.	we cannot determine what will happen to output

1 points

Question 4

The consumption function

A.	illustrates the relationship between real disposable income and real consumption spending
B.	illustrates the relationship between the price level and real consumption spending
C.	is the relationship between productivity and real consumption spending
D.	shows how real consumption increases when real disposable income decreases
E.	illustrates the relationship between real consumption spending and employment

1 points

Question 5

The focus of the short-run macro model is on the role of

A.	spending in explaining economic fluctuations
B.	labor in explaining economic fluctuations
C.	financial markets in explaining economic fluctuations
D.	output in explaining economic fluctuations
E.	resources in explaining economic fluctuations.

1 points

Question 6

If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?

A.	Aggregate expenditure is greater than output, so inventories will increase and output will be raised.
B.	Aggregate expenditure is greater than output, so inventories will decrease and output will be increased.
C.	Aggregate expenditure is less than output, so inventories will decrease and output will be raised.
D.	Aggregate expenditure is less than output, so inventories will increase and output will be lowered.
E.	Aggregate expenditure is greater than output, so inventories will increase and output will be lowered.

1 points

Question 7

If the marginal propensity to consume is 0.7, the expenditure multiplier is

A.	7.0
B.	0.7
C.	3.0
D.	3.3
E.	not determinable without additional information.

1 points

Question 8

Aggregate expenditure is the sum of

A.	all types of spending by households and firms
B.	spending and savings by households
C.	spending by households and governments on final goods and services
D.	spending by households, government, firms, and foreigners on final goods and services
E.	all spending and saving by households, firms, and governments

1 points

Question 9

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?

A.	$10,000
B.	$500
C.	$50
D.	$5,000
E.	$9,524

1 points

Question 10

When real consumption expenditure is plotted against real disposable income the resulting relationship is

A.	very weak.
B.	virtually flat .
C.	positive and very close to linear.
D.	negative and very close to linear.

indigognu668

The average propensity to consume (APC) equals

the change in real disposable income divided by the change in consumption expenditures.

the change in consumption expenditures divided by the change in real disposable income.

real disposable income divided by consumption expenditures.

consumption expenditures divided by real disposable income.

The consumption function shows how much

households plan to consume per year at each level of real disposable income.

households plan to consume per year at each level of savings.

households plan to consume per year at each possible interest rate.

real disposable income people will earn at each income tax bracket.

Saving is

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and services while savings is the difference between real GDP and disposable income.

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

Thinking as an economist would, which is true of investment?

		Investment represents spending on capital goods.
		Investment is a stock concept.
		Investment is putting money into stocks and bonds.
		It is the portion of disposable income that is not used for consumption or saving.

An appreciation of the U.S. dollar ________ the price of U.S. imports, and ________ the price of U.S. exports.

		lowers, lowers
		increases, increases
		increases, lowers
		lowers, increases

QUESTION 33

Other things being equal, if input prices rise in a country, then there would be

		cost-push inflation.
		demand-pull inflation.
		cost-push deflation.
		more production and a lower price level.

mauvetortoise195

The following is a model of a closed economy with nogovernment.
C = 44 + 0.6YD I = 12

where C = desired consumption expenditure (in billions of $), YD =disposable
income (in billions of $), and I = desired investment expenditure(in billions
of $).

a) What is autonomous C equal to?
b) What is induced C equal to if national income (Y) is 120?
c) What would happen to C if Y increased by 10?
d) What is the saving function equal to?
e) How can private saving (S) be negative? Explain.
f) What would happen to S if Y increased by 10?
g) At what level of Y is the average propensity to consume (APC)equal to 1?
h) How does the APC change as Y increases?
i) How does the average propensity to save (APS) change as Yincreases?
j) What is aggregate expenditure function equal to?
k) Is the economy in equilibrium when Y is 150? If no, then by howmuch are
the economyâs inventories changing?
l) What are the equilibrium levels of Y, C, S, and YD?
m) At equilibrium, what do the injections and the withdrawals inthis
economy equal?
n) Give two reasons why investment would change from I = 12 to I =18.
o) What are the new equilibrium levels of Y, C, S, and YD ifinvestment
changed from I = 12 to I = 18?
p) What is the size of the (simple) multiplier?
q) What is the change in Y in the 3rd round of the multipliereffect as a
result of the change in investment in part n?

harlequinseal728

EC140 Lecture Notes - Lecture 4: Autonomous Consumption, Consumption Function, Opportunity Cost

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