What must the value of the average propensity to save (APS) be if the average propensity to consume (APC) is greater than 1? Why?
What will be an ideal response?
The APS must be negative if the APC is greater than 1. The APC is the proportion of total income that is saved by consumers. The APC is the proportion of income that is spent by consumers. Consumers have only two options-to spend or save-so the portion spent plus the portion saved equal total income. The APC plus the APS must equal 1. If the APC is greater than 1, it means that consumers are spending more than their current disposable income and are therefore dissaving.
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Answer the following statement(s) true (T) or false (F)
1. The substitution effect insures that anytime there is a change in the price of a good, the quantity demanded along a compensated demand curve also changes. 2. The (ordinary) demand curve for a normal good must be downward sloping. 3. An inferior good is only Giffen when the substitution effect exceeds the income effect. 4. An ordinary demand curve contains both substitution and income effects, while a compensated demand curve contains only income effects. 5. The income elasticity of demand is equal to the slope of the Engel curve.
Everything else remaining unchanged, if a new seller enters a market to compete with an existing monopoly that is enjoying economies of scale, it will lead to:
A) higher profits for both firms. B) higher profits for the existing firm. C) lower profits for the existing firm. D) higher market power for the existing firm.
Terms of trade refers to
A) the relative price at which trade occurs. B) what goods are imported. C) what goods are exported. D) the volume of trade. E) the tariffs applied to trade.
Which of the following will shift the consumption function upward?
a. An increase in consumer wealth. b. An increase in the interest rate. c. An increase in personal income taxes. d. A decrease in the MPC. e. An increase in disposable income.