CORRECT ANSWERS ARE DIRECTLY BELOW THE WORDS
CORRECT ANSWER.
FOR FILL-IN-THE-BLANK questions: If your answer is in decimal form, round to 2 decimal places. For
example, if your answer is .412, enter it into the fill-in-the-blank as .41, or if your answer is 1.415, enter
it into the fill-in-the-blank as 1.42. If there are no decimals in your answer, you will simply enter the
number; so if your answer is 2, enter 2 with no decimals. Do not enter any extra spaces, do not enter
commas or $ or % symbols.
Question 1
3 / 3 pts
Suppose the consumption function is: C = a1 Yd + a2 WRE/S + a3CC Where all the a’s (the sensitivity
parameters) are greater than zero. Initial conditions: Let a1 = 0.65, a2 = 0.04, a3 = 0.5, WRE/S = 18,000:
CC = 70 Solve for C in terms of Yd. Select the correct equation.
C = 765 + .60 Yd
None of these are correct
Correct!
C = 755 + .65 Yd
C = 685 + .64 Yd
C = 70 + .65 Yd
Question 2
3 / 3 pts
Use the equation you found in #1 and let Yd = 2000. C is equal to:
Correct!
2,055
Correct Answers
2,055 (with margin: 0)

Question 3
3 / 3 pts
Suppose that the stock market rallies so that WRE/S increases to 22,000. Additionally, consumer
confidence (CC) rises to 120. Re-solve for C in terms of Yd. Select the correct equation.
C = 930 + .60 Yd
None of these are correct
C = 830 + .65 Yd
C = 980 + .64 Yd
Correct!
C = 940 + .65 Yd
Question 4
3 / 3 pts
Now suppose disposable income (Yd) falls due to a tax increase (Uncle Sam is trying to balance the
budget) to 1800. Solve for the level of consumption using the equation you found in question #3.
Consumption (C) is equal to:
Correct!
2,110
Correct Answers
2,110 (with margin: 0)
Question 5
3 / 3 pts
Now we will calculate the level of consumption that would have occurred if Uncle Sam did not raise
taxes. In other words, use the equation you found in question 3, but keep Yd at its original value of 2000.
Consumption (C) is equal to:
Correct!
2,240
Correct Answers

2,240 (with margin: 0)
Question 6
3 / 3 pts
Look at the consumption values you calculated in #2 and #4. The percent change in consumption
between those values is: _________%
NOTE: There is no graphing component to be collected for this homework. However, you should be
comfortable graphing the equations you found in #1 and #3. You should also be able to plot the points
you found in #2, #4 and #5.
Correct!
2.68
Correct Answers
2.68 (with margin: 0)
NOTE: There is no graphing component to be collected for this homework. However, you should be
comfortable graphing the equations you found in #1 and #3. You should also be able to plot the points
you found in #2, #4 and #5.
Question 7
3 / 3 pts
Use the table below for questions 7 & 8. Let’s consider some data on consumption and disposable
income from the Federal Reserve Database (measured in billions of dollars)
Real Personal Consumption Expenditures
Real Disposable Personal Income
January 1, 1995 6442.9
7190.9

January 1, 2018 12061.0
12940.5
The percent change in consumption between 1/1/95 and 1/1/18 is: _______%.

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