Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.

Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 5SQP

See similar textbooks

Similar questions

If combine the accounting definition E= C+I and the consumption function C=co + cY to give an equation in which expenditure is a function of output, E = f (Y), and we plot this function on axes with income on the horizontal axis and expenditure on the vertical axis, a reduction in the marginal propensity to consume will lead to: a. a shift downwards in the line with unchanged slope b. a less steep line c. a shift upwards in the line with unchanged slope d. a steeper line
Construct a consumption function from the data given here and determine the MPC. Given the consumption function in the above question, what is the relationship between disposable income and consumption? Is it direct or indirect and then explain what it means.
Which of the following is correct? When the consumption function lies above the 45-degree line, households (a) spend on consumption a decreasing percentage of any increase in income.(b) save all of any increase in income.(c) are dissaving.(d) spend on consumption an increasing percentage of any increase in income. Give proper explanatations
In January 2017, a report from the National Retail Federation said that “Holiday retail sales during November and December increased 4 percent over 2015 to $658.3 billion.” The NRF’s chief economist “noted that average hourly earnings were up in 2016 over 2015 … home values have also increased and the rising stock market has increased the value of consumers’ investments.” Which models of consumption behavior was the economist referring to? Precautionary savings model and Friedman’s permanent income model Keynesian consumption model and Modigliani’s life cycle model. Inventory cycle model and Modigliani’s life cycle model. Keynesian consumption model and precautionary savings model.
Given the consumption function below C = α + βY, if β is 0.4, how can it be interpreted? Select one: a. Out of any additional income, Consumption increases by 4% b. Out of any additional income, consumption increases by 40% c. Out of any additional income, Consumption increases by 60% d. Out of any additional income, Consumption increases by 0.4%
Induced consumption is:(a)the part of consumption which is independent of the level of income.(b)the minimum level of consumption that is financed from sources other than income.(c)The maximum level of consumption that is financed from sources other than income.(d)shown by the slope of the consumption function
Which of the following correctly describes how a decrease in the price level affects consumption spending? Select one: a. A decrease in the price level raises real wealth, which causes consumption to increase. b. A decrease in the price level decreases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. c. A decrease in the price level increases the amount of money a household needs to buy goods and so raises the interest rate, which causes consumption to increase. d. A decrease in the price level lowers real wealth, which causes consumption to decrease.
Draw the consumption function as the relation of the consumer's income and expenditure. What does the slope of the consumption function depend on? Is the consumer's income the only factor determining the level of his consumption spending?
The following graphs show an economy’s initial position at point A along its consumption function (CF). Suppose disposable income increases. Adjust the following graph by either shifting the consumption function curve or the initial point on the consumption curve (A) to illustrate the impact of an increase in disposable income.
describe what is held constant along the consumption function.
The MPC measures the relationship between: a change in consumption and a change in income. change in consumption and savings. changes in consumption and changes in savings. the proportion of income to consumption at any given level of income. the total level of consumption and the total level of saving.
If in an economy the consumption level is given as $110 while the disposable income is $220 find the APC