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.