MACROECONOMICS >C< W/MYECONLAB
18th Edition
ISBN: 9781323886038
Author: Pearson
Publisher: Pearson Custom Publishing
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Question
Chapter 9, Problem 1.6P
To determine
Disposable income, consumption, saving, planned aggregate expenditure (AE) and the unplanned inventory change.
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The consumption function macroeconomics is often written as C= a + b(Y-T) where b expresses:
a. The marginal savings rate
b. The marginal propensity to consume
c. The interest rate that maximizes consumption
d. The relationship between tax and consumption
Consider the following income/expenditure diagram in the simple Keynesian model.
If taxes, T, were increased, then
Group of answer choices
A) The Y = C+S+T line would shift to the right, and equilibrium Y would increase.
B) the C+I+G line would shift downward, and equilibrium Y would decrease.
C) The Y = C+S+T line would shift to the left, and equilibrium Y would decrease.
D) neither of the lines would shift, and equilibrium Y would stay the same.
E) the C+I+G line would shift upward, and equilibrium Y would increase.
Is the following statement TRUE or FALSE? Please provide reason for the answer.
The marginal propensity to consume must be smaller than one.
Chapter 9 Solutions
MACROECONOMICS >C< W/MYECONLAB
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Similar questions
- Which of the following will increase the slope of the demand curve in the goods market to indicate an increase in the level of output and income? Select one: a. An increase in autonomous investment. b. An increase in the marginal propensity to consume. c. An increase in government spending. d. An increase in taxation.arrow_forwardFind MPC from the given consumption function Y=2+0.2Yarrow_forwardUse the diagram below to answer the question If the marginal propensity to consume increases A. the consumption function will shift parallel upwards. B. there will be a movement from left to right along the consumption function. C. the consumption function will shift parallel downwards. D. the slope of the consumption function will be steeper.arrow_forward
- Which of the following will increase consumption spending? Group of answer choices a housing market crash an increase in the personal income tax rate a boom in the stock market an increase in the nominal interest ratearrow_forwardIf the marginal propensity to consume increases, that will: Shift the consumption function downwards Lead to the consumption function becoming flatter Shift the consumption function upwards Lead to the consumption function becoming steeperarrow_forwardConsider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billionarrow_forward
- Suppose that autonomous consumption (a) is 300, private investment spending (I) is 420, government spending (G) is 400, Net taxes (T) are 400 and marginal propensity to consume (b) is 80 %, and marginal tax rate (t) is 25 %. By using the above information: Find the equilibrium value of national income and show it on a grapharrow_forwardWhich of the following statements are correct? The introduction of government spending increases the size of the multiplier. The introduction of taxes increases the size of the multiplier. The introduction of taxes reduces the slope of the consumption function. Select one: A. A B. None of the statements is correct. C. C D. Barrow_forwardAs shown in Exhibit 2, the marginal propensity to consume (MPC) is: Group of answer choices 0.33. 0.50. 0.67. 0.75.arrow_forward
- The marginal propensity to consume for this economy is …………. if income rises from $9000 to $10000 and consumption is rises from $750 to $1500 0.650. 0.750. 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 0.800.arrow_forwardAn increase in the interest rate would shift the consumption function upward. True or Falsearrow_forwardCalculate marginal propensity to consume from the following Equilibrium income $350 Consumption expenditure at zero income $20 Investment $50arrow_forward
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