PRINCIPLES OF MACROECONOMICS QUIZ #3 – COVERING CHAPTERS 8 AND 9ANSWERS 1.What is the relationship between consumption and the following economic variables: household income, wealth, household's expectations about the future, and interest rates?

2.Draw a graph of the consumption function and explain what the vertical intercept means and the slope. Make sure to label both axes.

3.Explain any differences between actual investment and planned investment. Also, is

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it possible for actual investment to be greater than planned investment? If so, explain.

4.Assume consumption is represented by the following: C = 400 + .75Y. Also assume that planned investment (I) equals 100.(a) Given the information, calculate the equilibrium level of income.