Consider an individual consumption function, which is the standard textbook consumption function, that is, has a y-intercept of autonomous consumption and is linear in the disposable income. Assume that the slope of this consumption function equals 0.7, and that the autonomous consumption equals $20 billion in the aggregate economy. Write down the consumption function for this economy.
What will be an ideal response?
Answer: C=a+MPC (DI) = 20+0.7yd, where DI is the individual disposable income, DI = Y-(T-TR)
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Which of the following theories predicts that current consumption increases when a person expects an increase in future income?
A) the life-cycle theory of consumption B) the Keynesian theory of consumption C) the permanent income hypothesis D) all of the above
In the figure above, moving from production at point d to production at point a requires
A) technological change. B) a decrease in unemployment. C) decreasing the output of consumer goods in order to boost the output of capital goods. D) both capital accumulation and a decrease in unemployment.
If a $500 tax is placed legally (statutorily) on the buyers of new couches and as a result the price of couches at stores rises by $200, the actual burden of the tax
a. falls completely on couch buyers. b. falls completely on couch sellers. c. is $200 on couch buyers and $300 on sellers. d. is $300 on couch buyers and $200 on sellers.
Refer to the table. In relation to column (3), a change from column (5) to column (4) would indicate a(n):
A. increase in demand.
B. decrease in demand.
C. increase in supply.
D. decrease in supply.