Chapter 12 Consumption, Real GDP, and the Multiplier 455
43) According to the above figure, autonomous consumption equals
A) $0. B) $5,000. C) $20,000. D) $5,000.
44) Refer to the above figure. If real disposable income is less than $5,000, then saving is
A) 0.
B) negative.
C) positive.
D) none of the above: cannot be determined with the given information.
45) Where the consumption function intersects the 45 degree line,
A) savings will be negative.
B) consumption will equal only autonomous consumption.
C) the average propensity to consume is 0.5.
D) saving will be zero.
46) If the marginal propensity to consume is unchanged and autonomous consumption
expenditures increase, then
A) saving at every level of disposable income increases.
B) the break even disposable income decreases.
C) the break even disposable income increases.
D) saving is unaffected.
47) Autonomous consumption is
A) consumption spending that is earned rather than transferred from the government.
B) consumption spending that does not depend on the level of income.
C) the amount spent on consumption when saving equals zero.
D) consumption spending when the marginal propensity to consume is 1.
48) In economics, the term autonomous means
A) existing independently. B) non economic related.
C) disposable income. D) cash payments.
49) When a household s disposable income falls to zero, what do we expect will happen?
A) The household s consumption spending also falls to zero.
B) The household will maintain a positive level of saving.
C) The household will maintain its previous level of consumption.
D) Consumption will fall to the level of autonomous consumption.
50) If the level of consumption is $100 billion and disposable income is $125 billion, then the
A) APC 0.6 and saving is positive. B) APC 0.8 and saving is negative.
C) APC 0.8 and saving is positive. D) APC 0.6 and saving is negative.
51) If disposable income $200 billion and the APS 0.9, then
A) saving $90 billion. B) saving $45 billion.
C) saving $180 billion. D) saving cannot be determined.
52) If the marginal propensity to save is 0.4 and disposable income increases from $1,000 to $1,500,
saving will increase
A) $100. B) $200. C) $300. D) $400.
53) If consumption is $750 when real disposable income is $1,000, the average propensity to
consume is
A) 0.80. B) 0.75. C) 0.50. D) 0.25.
54) The average propensity to consume is the
A) percentage of total disposable income consumed.
B) rate at which real disposable income changes as planned consumption changes.
C) ratio of changes in planned consumption to changes in real disposable income.
D) slope of the consumption function.
55) Which of the following correctly defines the average propensity to consume (APC)?
A) Change in planned consumption divided by change in real disposable income
B) Planned consumption divided by real disposable income
C) Real disposable income divided by planned consumption
D) Change in real disposable income divided by change in planned consumption
56) As real disposable income increases, we expect the average propensity to consume (APC)
A) to always be below MPC. B) to increase.
C) to decrease. D) to remain unchanged.
57) If the average propensity to consume is 0.8, then the average propensity to save is
A) 0. B) 0.2. C) 0.8. D) 1.
58) The average propensity to consume (APC) equals
A) real disposable income divided by consumption expenditures.
B) consumption expenditures divided by real disposable income.
C) the change in consumption expenditures divided by the change in real disposable income.
D) the change in real disposable income divided by the change in consumption expenditures.
59) If the average propensity to save (APS) is 0.60, then this means
A) people are saving 60 percent of their disposable income.
B) people are spending 60 percent of their disposable income.
C) the marginal tax rate is 60.
D) the government spends 60 percent of its revenues.
60) When the average propensity to save (APS) is 0.20, then this means
A) people are spending 20 percent of their disposable income.
B) people are spending 80 percent of their disposable income.
C) people are saving $0.20 of the last dollar earned.
D) people are spending 60 percent of their disposable income and investing the remaining 20
percent.
61) If the marginal propensity to save (MPS) 0.1, then
A) the MPC 0.9.
B) the APS 0.1.
C) the APC 0.9.
D) consumption equals $1,800 when income equals $2,000.
62) The marginal propensity to consume (MPC) can best be defined as that fraction of
A) real disposable income that is consumed.
B) real disposable income that is not consumed.
C) a change in real disposable income that is spent.
D) a change in real disposable income that is saved.
63) The fraction of a change in real disposable income that is spent is referred to as the
A) APC. B) MPC. C) MPS. D) APS.
64) The marginal propensity to consume (MPC)
A) shows how much real disposable income changes when consumption falls.
B) is greater than 1 only if the marginal propensity to save is greater than 1.
C) shows how much of an extra dollar of real disposable income is spent.
D) shows the percentage of real disposable income consumed at each level of income.
65) The marginal propensity to consume explains how much of the next dollar of disposable income
A) a household will spend.
B) a business will invest.
C) the government will spend.
D) foreign residents will use to purchase domestic exports.
460 Miller Economics Today, 16th Edition
Real Disposable Income Consumption
0 $100
$100 $180
$300 $340
$500 $500
$700 $660
$900 $820
66) In the above table, the marginal propensity to consume (MPC) is
A) 0.9. B) 0.75. C) 0.8. D) 0.85.
67) In the above table, saving is positive when real disposable income is greater than
A) zero. B) $100. C) $300. D) $500.
68) In the above table, saving equals zero when real disposable income equals
A) $0. B) $200. C) $300. D) $500.
69) In the above table, the marginal propensity to save is ________.
A) 0.8 B) 0.6 C) 0.2 D) 0.4
70) The arithmetic value of (1 MPC) equals
A) APC. B) MPS. C) APS. D) NDP.
71) The ratio of the change in consumption to the change in disposable income is the
A) marginal propensity to consume. B) marginal propensity to save.
C) average propensity to consume. D) average propensity to save.
72) The marginal propensity to consume is calculated by
A) dividing consumption by income.
B) dividing income by consumption.
C) dividing the change in income by the change in consumption.
D) dividing the change in consumption by the change in income.
73) If the average propensity to consume is 1.0, the marginal propensity to consume is 0.8, and real
disposable income increases by $100, the additional saving is
A) $0. B) $20. C) $80. D) $100.
74) If the MPC is 0.8, then the MPS is
A) 0.2. B) 1. C) 5. D) 8.
462 Miller Economics Today, 16th Edition
Real Disposable Planned
Income Savings
$100 $10
150 5
200 0
300 10
360 16
500 30
75) According to the above table, the value of the MPC is
A) 0.9. B) 0.1. C) 0.5. D) 0.7.
76) According to the above table, as the level of real disposable income increases,
A) the marginal propensity to save declines.
B) the APC increases.
C) the marginal propensity to consume increases.
D) the APS increases.
77) According to the above table, the value of MPS is ________.
A) 0.9
B) 0.2
C) 0.1
D) increasing as real disposable income rises.
78) It is conceivable that the APC, APS, MPC, and MPS could simultaneously be
A) APC 1.0; APS 0.1; MPC 0.8; MPS 0.25.
B) APC 0.8; APS 0.2; MPC 1.1; MPS 0.1.
C) APC 1.3; APS 0.3; MPC 0.9; MPS 0.1.
D) APC 1.0; APS 0; MPC 1.0; MPS 0.15.
79) What can we say about APC APS and MPC MPS?
A) Each must sum to 1.
B) MPC MPS 100% of total income.
C) APC APS 100% of the change in income.
D) MPC MPS always equals 1, but the sum of APC APS can vary.
80) Which of the following would be expected to shift the consumption function up?
A) Decreases in wealth B) Expectations of harder times ahead
C) Increases in the nation s population D) Changes in real disposable income
81) The non income determinants of consumption include all of the following EXCEPT
A) stock of assets owned by household. B) innovation.
C) the interest rate. D) real wealth.
82) All of the following will shift the consumption function EXCEPT
A) a change in wealth.
B) a change in the rate of interest.
C) a change in income.
D) a change in expectations concerning economic conditions.
83) The consumption function shifts upward when
A) real income increases.
B) saving increases.
C) the real wealth of the average household increases.
D) population decreases.
84) The consumption function will shift with
A) an increase in real disposable income. B) a change in saving.
C) a decrease in real disposable income. D) a change in household wealth.
85) According to Keynes, the primary determinant of a person s saving is
A) the nominal interest rate.
B) the real interest rate.
C) the level of the person s consumption spending.
D) the level of the person s real current income.
86) Which of the following is correct?
A) 1 MPS MPC B) 1 MPC MPS
C) 1 MPS MPC 1 D) 1 MPS MPC 1
87) The consumption function relates
A) a household s consumption to its wealth.
B) planned household consumption to real disposable income.
C) planned household consumption and real interest rates.
D) real disposable incomes earned by households with the level of consumption credit
desired in the economy.
88) How much people plan to consume at various levels of disposable income is known as
A) dissaving. B) investment.
C) the consumption function. D) inventory investment.
89) The relationship between planned real consumption expenditures of households and their
current level of real disposable income is
A) investment. B) dissaving.
C) saving. D) the consumption function.
90) In the Keynesian model, consumption
A) is positively related to income and saving is negatively related to the stock market.
B) is positively related to income but saving is not systematically related to either income or
interest rates.
C) and saving are positively related to the real interest rate.
D) and saving are positively related to income.
91) Dissaving is
A) impossible in the simple Keynesian model.
B) the situation when saving exceeds consumption.
C) the situation when consumption spending exceeds disposable income.
D) the situation when people save smaller and smaller amounts.
92) A situation in which spending exceeds income is
A) the consumption function. B) the saving function.
C) average propensity to save. D) dissaving.
93) As real disposable income increases, consumption expenditures
A) increase by the same amount. B) increase by a smaller amount.
C) increase by a larger amount. D) remain constant.
94) When disposable income equals consumption expenditures, then
A) saving is zero.
B) saving equals 10 percent of income.
C)
b
oth saving and savings are zero.
D) we can t tell what saving is without more information.
95) At a level of real disposable income of 0, consumption is $4000. Then
A) saving equals 0. B) saving equals $4000.
C) savings equal $4000. D) saving equals $4000.
96) Refer to the above figure. Line BCD is called
A) the saving function. B) the savings function.
C) the 45 degree line. D) the consumption function.
97) Refer to the above figure. Line ACE is called
A) the saving function. B) the savings function.
C) the 45 degree line. D) the consumption function.
98) Refer to the above figure. If real disposable income is $30,000, saving is
A) $0. B) $4000. C) $5000. D) $6000.
99) Refer to the above figure. At an income of $10,000, saving is
A) 0. B) $13,000. C) $3,000. D) $3,000.
100) Refer to the above figure. Autonomous consumption equals
A) 0. B) $5000. C) $5000. D) $25,000.
101) Refer to the above figure. The marginal propensity to consume and the marginal propensity to
save
A) are 0.90 and 0.10, respectively. B) are 0.83 and 0.17, respectively.
C) are 0.75 and 0.25, respectively. D) depend on the level of income.
102) Refer to the above figure. The figure represents the consumption function for a consumer. Point
A represents
A) autonomous consumption. B) positive saving.
C) negative consumption. D) zero saving.
103) Refer to the above figure. The figure represents the consumption function for a consumer. Point
B represents
A) autonomous consumption. B) positive saving.
C) negative saving. D) zero saving.
104) Refer to the above figure. The figure represents the consumption function for a consumer. Point
C represents
A) autonomous consumption. B) positive saving.
C) negative saving. D) zero saving.
105) Refer to the above figure. The figure represents the consumption function for a consumer. Point
D represents
A) autonomous consumption. B) saving.
C) dissaving. D) zero saving.
106) Refer to the above figure. The figure represents the consumption function for a consumer. The
distance between A and B represents
A) the amount of autonomous consumption.
B) the amount of autonomous saving.
C) the amount of total consumption.
D) none of the above.
107) Refer to the above figure. The figure represents the consumption function for a consumer. The
distance between C and D represents
A) the amount of autonomous consumption.
B) the amount of saving.
C) the amount of dissaving.
D) the point where saving equals zero.
108) Refer to the above figure. The figure represents the saving function for the consumer. Point A
represents
A) the amount of autonomous consumption.
B) a situation in which saving is positive.
C) a situation in which saving is negative.
D) the point at which saving equals zero.
109) Refer to the above figure. The figure represents the saving function for the consumer. Point B
represents
A) the amount of autonomous consumption.
B) a situation in which saving is positive.
C) a situation in which saving is negative.
D) the point at which saving equals zero.
110) Refer to the above figure. The figure represents the saving function for the consumer. Point C
represents
A) the amount of autonomous consumption.
B) a situation in which saving is positive.
C) a situation in which saving is negative.
D) the point at which saving equals zero.
111) Refer to the above figure. Autonomous consumption is
A) only at point A. B) to the left of point B.
C) only at point B. D) to the right of point B.
112) Refer to the above figure. The point at which saving equals zero is
A) only at point A. B) to the left of point B.
C) only at point B. D) to the right of point B.
113) Refer to the above figure. Dissaving occurs,
A) only at point A. B) to the left of point B.
C) only at point B. D) to the right of point B.
114) Refer to the above figure. Saving occurs at
A) only at point A. B) to the left of point B.
C) only at point B. D) to the right of point B.
115) Along the 45° reference line
A) consumption expenditures equal saving.
B) the relationship between consumption and income is represented.
C) the average propensity to consume is represented.
D) planned real expenditures equal real disposable income.
116) Planned expenditures equal real disposable income
A) at every point on the consumption function.
B) at every point on the saving function.
C) at every point on the 45 degree line.
D) when saving equals zero.
117) The break even point refers to
A) the amount of autonomous consumption.
B) the point at which planned real consumption equals real disposable income.
C) the maximum amount of dissaving a person can experience.
D) a point at which planned real consumption is for greater than real disposable income.
118) Autonomous consumption
A) is the same as the break even point.
B) gives the amount a person changes planned consumption for a change in real disposable
income.
C) is the amount of consumption that is independent of the level of disposable income.
D) is the proportion of total disposable income that is consumed.
119) The part of consumption that does not depend upon the level of disposable income is
A) autonomous consumption. B) saving.
C) savings. D) average propensity to consume.
120) Average propensity to consume
A) is the same as the break even point.
B) gives the amount a person changes planned consumption for a change in real disposable
income.
C) is the amount of consumption that is independent of the level of disposable income.
D) is the proportion of total disposable income that is consumed.
121) The average propensity to consume is
A) real consumption expenditures divided by real disposable income.
B) real disposable income divided by real consumption expenditures.
C) real consumption expenditures divided by real saving.
D) real consumption expenditures divided by real saving.
122) Marginal propensity to consume
A) is the same as the break even point.
B) gives the amount a person changes planned consumption for a change in real disposable
income.
C) is the amount of consumption that is independent of the level of disposable income.
D) is the proportion of total disposable income that is consumed.
123) The average propensity to consume is
A) real consumption/real disposable income.
B) real saving/real disposable income.
C) change in real consumption/change in real disposable income.
D) change in real saving/change in real disposable income.
124) The marginal propensity to save is
A) real consumption/real disposable income.
B) real saving/real disposable income.
C) change in real consumption/change in real disposable income.
D) change in real saving/change in real disposable income.
125) Which of the following is negative for the typical consumer at some level of real disposable
income?
A) Marginal propensity to save. B) Marginal propensity to consume.
C) Average propensity to save. D) Average propensity to consume.