Chap013 - Chapter 13 - Consumption and Saving Chapter 13...

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Chapter 13 - Consumption and Saving Chapter 13 Consumption and Saving Multiple Choice Questions 1. Consumption is an important element of aggregate demand because it a. Is the most volatile component B . Accounts for roughly 70 percent of aggregate demand c. Is very interest sensitive d. Is greatly affected by stock market activity e. All of the above Difficulty: Easy 2. When the aggregate consumption function is defined as C = C o + cYD, then a. The mpc increases with higher levels of disposable income B . The mpc is constant at all levels of disposable income c. The apc is constant at all levels of disposable income d. The apc increases with higher levels of disposable income e. The expenditure multiplier is less than one Difficulty: Easy 3. According to the simplified life-cycle theory of consumption, a retired person with zero income from labor would a. Only consume the interest on accumulated wealth B . Consume a fraction of accumulated wealth based upon her/his life expectancy c. Have to decrease consumption sharply in order not to run out of funds too soon d. Expect to be financially supported by her/his children e. Consume more than during her/his working years since she/he does not expect to live much longer Difficulty: Medium 13-1
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Chapter 13 - Consumption and Saving 4. The long-run marginal propensity to consume (mpc) is A . Larger than the short-run mpc b. Slightly smaller than the short-run mpc c. About half the size of the short-run mpc d. Identical to the short-run mpc e. Always equal to 1 Difficulty: Easy 5. The debate about different consumption theories can be viewed as a debate over whether a. The consumption of durable or non-durable goods should be considered b. Random events that can change consumption behavior really do occur c. Liquidity constraints do ever exist D . The marginal propensity to consume is large or small e. The average propensity to consume is less or greater than 1 Difficulty: Easy 6. The life-cycle theory of consumption implies that a. The mpc out of wealth is very small b. The mpc out of permanent income is larger than the mpc out of transitory income c. A large change in stock values can affect the economy, but the effect is fairly small d. An individual's mpc out of permanent income changes with age E . All of the above Difficulty: Medium 7. According to the life-cycle theory of consumption, an individual's a. Mpc out of wealth is fairly large b. Mpc out of labor income increases with increasing age, until it becomes zero at retirement age C . Mpc out of transitory income is fairly small d. Level of consumption will decrease if his/her retirement age is increased e. None of the above Difficulty: Medium 13-2
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Chapter 13 - Consumption and Saving 8. The life-cycle theory of consumption can be summarized as follows: a. Retired people need less so they can save more than working people b. People want instant gratification and seldom worry about the future c. People always tend to consume almost all of their current income
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This note was uploaded on 12/05/2011 for the course ECON 201 taught by Professor Dr.matin during the Spring '09 term at Charleston.

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Chap013 - Chapter 13 - Consumption and Saving Chapter 13...

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