Chapter 42
Consumer Spending and Labor Income
MULTIPLE CHOICE
460. Keynes believed that consumer demand in the aggregate is determined primarily by
a. the interest rate.
b. the rate of inflation.
c. national income.
d. government spending.
461. At very low levels of income, consumer spending is likely to
a. be less than income
b. be greater than income
c. be the same as income
d. be the same as savings.
462. –
a. having no respect for savings.
b. drawing money out of savings.
c. putting money into savings.
d. not saving at all.
463. Those who currently have no savings and have no income
a. are unable to consume.
b. will go into debt in order to consume.
c. have a zero marginal propensity to consume.
d. will increase their level of savings.
464. The wealthy tend to have
a. higher average propensities to consume
b. higher average propensities to save.
c. lower average propensities to save.
d. the same average propensity to consume as less wealth persons.
465. A shift in income distribution from wealthy individuals to poor individuals is likely to
a. increase consumer debt.
b. increase the national propensity to consume.
c. leave the national propensity to consume unchanged.
d. decrease the national propensity to consume.
466. In an economic expansion, the average ratio of consumption to income (APC)
a. increases
b. decreases
c. stays the same
d. could either increase or decrease.
467. What is the definition of the ter
a. it is the share of labor costs in a firm
b. it is the share of labor income in national income.
c. it is the share of federal taxes paid by employees rather than by capitalists.
d. It is the share in total business revenues that employees receive.
468. Consumer debt as a percentage of national income in the cycle 1991 to 2001 was
approximately
a. 22%
b. 52%
c. 72%
d. 92%
469. What is the wealth effect?
a. the tendency for many individuals to copy the consumption patterns of the wealthy.
b. the tendency for increases in wealth to lead to increases in savings.
c. the tendency for increases in wealth to lead to increases in consumption.
d. the tendency for the wealthy to willingly share their good fortune with the less well off.
470. Assume that Sam has $2000 in savings and a car worth about $10,000. He owes $9,000 on
a. $2,000
b. $12,000
c. 0
d. -$1,000
471. Brad and Angie own a nice house worth $400,000. They have 2 cars worth $20,000 each,
and $5,000 in the bank. They recently borrowed $100,000 on their house in order to send
their daughter, Jennifer, to college. They also gave Jennifer a credit card for her expenses,
and the balance is now $10,000. How much wealth do Brad and Angie have?
a. $330,000
b. $445,000
c. $110,000
d. $525,000
472. Why consumers tend to purchase less if they have less wealth (or more debt), even if their
income remains constant?
a. consumers are irrational.
b. consumers may feel richer, so they increase their savings in order to emulate the wealthy.
c. consumers may feel poorer, so they want to increase their savings.
Diagram 42a
473. Diagram 42a indicates that
a. consumption increases faster than income.
b. income is always less than consumption.
c. consumption is always less than income.
d. income increases faster than consumption.
Income
C
o
n
s
u
m
p
t
i
o
n
$6,000
I
C
474. Diagram 42a indicates that
a. consumption is unrelated to income.
b. consumption is positively related to income.
c. consumption is inversely related to income.
d. consumption is constant.
475. Diagram 42a indicates that when income is greater than $6,000
a. consumers are spending more than income.
b. consumers are not spending.
c. consumers are spending less than income.
d. consumers are spending exactly all of their income.