Aggregate Expenditures Model I saving function
The U.S. consumption function
has shifted upward over time. has a positive slope. has a slope of about 0.9.
Which of the following would shift the consumption function upward
increase in wealth
An increase in expected future income ____ consumption expenditure and ____ saving.
increases; decreases
Real GDP
is equal to aggregate income.
Autonomous consumption
is independent of income
If the marginal propensity to consume is 0.8, every $10 increase in disposable income increases
consumption expenditure by $8.00.
Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD where YD is disposable income (Scenario: Consumption Spending) If income increases by $2,000, consumption will increase by:
$1,600.
In the figure above, the induced consumption when real GDP is $15 trillion is
$10 trillion.*****
In the above figure, when disposable income equals $12 trillion, induced consumption expenditure equals
$10.8 trillion.********2
According to the data in the above table, at what level of disposable income is savings negative?
200|225
Where the consumption function crosses the 45° line
consumption expenditure equals disposable income.
Which of the following would shift the consumption function downward?
A decrease in future expected income.
A downward shift in the consumption function can be caused by:
a decline in consumer wealth.
Disposable income is equal to
aggregate income minus taxes plus transfer payments.
There is a movement along the consumption function if there is
an increase in disposable income.
Planned saving equals
disposable income minus planned consumption expenditure.
In the very short term, planned investment ________ when GDP changes and planned consumption expenditure ________ when GDP changes.
does not change; changes
The slope of the consumption function
equals the MPC.
In the above figure, a change in autonomous consumption to $4 trillion with no change to the MPC would cause the consumption function to
exhibit a parallel shift upward.***
The marginal propensity to consume measures how much
of a change in disposable income will be consumed.
An increase in disposable income
results in a movement upward along the saving function.
When disposable income is 0, consumption is $2000. Then
saving = -$2000.
At a level of disposable income of $0, consumption expenditure is $3,500. Therefore when disposable income is $0
saving equals -$3,500.
When disposable income equals consumption expenditure, then
saving is zero.
If the real interest rate falls, the consumption function
shifts upward.