ECON-1010 Lecture Notes - Lecture 9: Consumption Function

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brownmule668

4 Feb 2020

School

Vanderbilt University

Department

Economics

Course

ECON-1010

Professor

Buckles Stephen

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ECON-1010 Full Course Notes

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Income: more income, more consumption (but will start at a positive amount, consumption = a + b (income) [c = a + b (income)] Income taxes: expectations of future income, wealth, transfer payments, amount people want to save ("what the consumption function is really about" -buckles) If we decide we want to save more, then the whole consumption function is going to decrease. Interest rates: question: if interest rates decrease, what will happen to consumption spending, increase [**in most cases, decrease, stay the same, one cannot tell. They are earning less interest and so their income levels may go down--they may decrease their consumption spending.

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

27.Individuals with low incomes probably

a. pay no Social Security tax

b. pay more Social Security tax than income tax

c. pay less Social Security tax than personal income tax

d. pay no taxes at all

e. are avoiding most of their tax payments

28. Which of the following is true?

a. The federal budget deficit is a flow and so is the national debt.

b. The national debt is both a stock and a flow.

c. The federal budget deficit is a stock and the national debt is a flow.

d. The federal budget deficit is a flow and the national debt is a stock.

e. The federal budget deficit is stock and so is the national debt.

30. When the U.S. government runs a deficit, it usually does the following:

a. it buys government bonds from the public

b. it asks the Treasury Department to print money to pay for the deficit

c. it sells new government bonds to the public

d. it borrows money directly from the Federal Reserve

e. it asks the Federal Reserve to print money to pay for the deficit

32. Under what condition can the U.S. government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

a. if the national debt grows at the same rate as nominal GDP

b. if the nominal interest on the national debt grows faster than nominal GDP

c. if the total interest payments on the national debt grow faster than nominal GDP

d. if the national debt grows faster than nominal GDP

e. if the real interest on the national debt grows faster than real GDP

34.The national debt

a. will be zero when the federal budget is balanced.

b. has been shrinking in the last 30 years.

c. is equal to the governmentâs budget deficit.

d. can grow without negative economic effects.

36.In the long run,

a. an increase in the federal budget deficit can lower the interest rate and investment spending.

b. an increase in the federal budget deficit can raise the interest rate and investment spending.

c. a decrease in the federal budget deficit can lower the interest rate and raise investment spending.

d. a decrease in the federal budget deficit can raise the interest rate and lower investment spending.

44. If the Fed conducts open market purchases (of bonds), we should expect to see the money supply

a. decrease, the interest rate increase, autonomous consumption decrease, business investment decrease, and real GDP decrease

b. increase, the interest rate decrease, autonomous consumption decrease, business investment decrease, and real GDP decrease

c. increase, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP increase

d. decrease, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP decrease

e. decrease, the interest rate increase, autonomous consumption increase, business investment increase, and real GDP increase

48. In the classical model the interest rate is determined in the money market; in the short-run macro model, the interest rate is determined in the market for loanable funds.

a. true

b. false

yellowreindeer970

Since the United States has negative net foreignâ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of theâ dollar, reducing aggregate demand.

B. increases in government spending can increase interestâ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on importedâ goods, which do not benefit the domestic economy.

D. increases in taxes reduceâ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduceâ inflation, it

A. sells treasury securities increasing interestâ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interestâ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interestâ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interestâ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it investsâ domestically, then its net foreign investment must be (positive, negative, or zero)?

ECON-1010 Lecture Notes - Lecture 9: Consumption Function

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