econ 5

On the graph, if we start with a disposable income of $6,000, move vertically to the 45-degree line, and finally move horizontally to the vertical axis we would have expenditures of

$6,000.

Say you have a disposable income of $100,000 of which you consume $80,000 and save the remainder, in this case the APS (average propensity to save) would be

0.2.

Say you have a disposable income of $50,000 of which you consume $45,000 and save the remainder, in this case the APC (average propensity to consume) would be

0.90.

The average 30-year old commits about _____ of income in order to maintain a home.

40%

Consumption (C) accounts for approximately

70%of the GDP.

consumption occurs when the income level is zero.

Autonomous

A motto for the last 34 years might be

"shop till you drop." "buy now, pay later."

On an economic graph, the vertical scale is almost always measured in

$

When consumers lose $1 of wealth in the market, spending will decrease by about

$0.04.

Based on the graph, if disposable income is $2 trillion, the level of consumption would be _____.

$2.5 trillion

The Federal Reserve estimates that for every $1,000 of increased wealth your consumption will rise by:

$37.50

Based on the graph, is disposable income was $5 trillion, the level of consumption would be

$4.0 trillion.

consumption occurs when consumers purchase essentially frivolous goods and services simply to show off their wealth.

Conspicuous

Comparing the United States to the rest of the world our savings rate is

near the bottom.

Prior consumption decisions resulting in credit card debt, medical bills, and mortgage payments mean that

nearly all or income is committed before it is earned.

Total consumption can be found by _____.

summing up autonomous consumption and induced consumption

Induced consumption is

the consumption that varies with income.

Gross domestic product is defined as

the nations expenditures on all the final goods and services produced by the country during the year at market prices.

The APS (average propensity to save) is

the percentage of disposable income saved. the "mirror image" of the APC.

The average propensity to consume is defined as

the percentage of disposable income that is consumed.

The savings rate can be calculated as

the percentage of disposable income that is saved.

The theory that people gear their consumption to their expected earnings more than their current earnings is known as

the permanent income hypothesis.

If the value of your assets increases causing you to increase your consumption, you have experienced

the wealth effect.

Consumers tend to buy more durable goods now when

they expect inflation.

Consumer durable sales tend to be somewhat erratic since

they vary inversely with the stock of consumer durables.

The savings function is

very similar to the consumption function.

An increase in the value of liquid assets will cause consumption to rise because:

you feel richer and may decide to spend more. you actually have more so may choose to spend some of it.

You are more likely to save if _____.

you have more money the interest rates are high the inflation rate is low

consumption is the consumption that varies with income.

Induced

is simply not spending.

Saving

The government has enabled our spending binge because:

Social Security from the government means that we no longer feel the need to save for retirement. property taxes are deductible so the government pays for part of our home.

True or false: At very low levels of disposable income, there tends to be dissaving.

True

Declining savings rates are _____.

common in today's economy

Purchasing essentially frivolous goods or services with the sole purpose of showing off one's wealth is known as

conspicuous consumption.

If we add together the induced and autonomous consumption, we would get

consumption

The total of everyone's expenditures is known as _____.

consumption

The marginal propensity to consume is defined as the change in divided by the change in

consumption income

The definition of a "basic" standard of living

continues to rise over time.

People will borrow more to fund consumption when

credit is eased.

Some of the determinants of the level of consumption are

maintaining a basic standard of living. keeping up with the Joneses. credit availability.

At very low levels of disposable income, consumers tend to spend _____ their disposable income.

more than

GDP includes

final goods produced this year. final services produced this year.

Example of nondurable goods include

gasoline. children's clothing. food.

All consumption falls into one of the two categories of or .

goods services

Large government deficits

greatly reduce total savings.

The ratio of personal consumption spending to disposable income is the

average propensity to consume.

Because some products that may have been luxuries at one time have now become part of the "basic" standard of living, poor Americans today live than middle-class Americans did a few decades ago.

better

According to President Regan's chief economic adviser, Americans:

borrow more than they save. spend more than they earn. consume more than they produce.

The largest contributor to total savings is

business saving.

When we create an economic graph of the consumption function, consumption will rise but not as as disposable income.

fast

Determinants of the level of consumption include

disposable income. consumer expectations. credit availability.

Consumer spending (C) includes

durable goods. services. nondurable goods.

Savings expressed as a percentage of income has generally been ____ since 1984

falling

The savings rate has become so low in the last 50 years because of:

home ownership. Social Security.

Example of durable goods include

household appliances. cars. personal computers.

Nearly all of our paychecks have already been committed before they are received in order to pay_____.

insurance premiums your mortgage credit card debt federal income taxes

Consumption, when the income level is zero, is

known as autonomous consumption.

When there is a large stock of durable goods, durable good sales tend to be

low

Under the permanent income hypothesis, a worker who lost their job because of a temporary layoff would

not cut back significantly on consumption.

Improving the credit terms for big-ticket items such as furniture would cause

people to buy more.

Inflation tends to lower the savings rate because

people want to spend their money before prices rise.

Once you purchase a home, you are committed to:

real estate taxes. mortgage payments. upkeep and repairs.

People tend to postpone major purchases when they expect

reduced income from a recession.

When consumption is drawn on an economic graph, it would

rise but at a slower rate than disposable income.

The consumption functions states that consumption will rise but not as quickly as disposable income, while the savings function states that when income rises, savings will ____ at a rate that is _____ than disposable income.

rise; slower

The marginal propensity to save is defined as the change in divided by the change in .

savings income

Disposable income that is not spent is known as

savings.