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Unformatted text preview: The first economist to give the consumption function a key role in macroeconomic analysis was A. John Maynard Keynes. B. Franco Modigliani. C. Milton Friedman. D. Irving Fisher. 0 out of 1 Incorrect. The correct answer is A. See Section 171 for a discussion of Keynes’s contribution to the theory of consumption. 2 of 24 Keynes posited that the ratio of consumption to income, called the average propensity to consume, A. rises with income. B. is constant and equal to 0.50. C. is constant and equal to 1. D. falls as income rises. 0 out of 1 Incorrect. The correct answer is D. See Section 171 for an explanation of Keynes’s theory of consumption. 3 of 24 Keynes conjectured that the marginal propensity to consume out of an additional dollar of income is A. zero. B. between zero and one. C. one. D. greater than one. 1 out of 1 Correct. The answer is B. See Section 171 for an explanation of the Keynesian consumption function. 4 of 24 According to Keynes, consumption is primarily determined by A. the interest rate. B. income and the interest rate. C. income. D. the savings rate. 0 out of 1 Incorrect. The correct answer is C. According to Keynes, the primary determinant of consumption is income. See Section 171. 5 of 24 Suppose we write the Keynesian consumption function as C = K + cY where K > 0 and 0 < c < 1 The average propensity to consume can then be written as A. K/Y + c/Y. B. K/Y. C. c. D. K/Y + c. 0 out of 1 Incorrect. The correct answer is D. The average propensity to consume is equal to the consumption function divided by income (Y). See Section 171. 6 of 24 Suppose we write the Keynesian consumption function as C = K + cY where K > 0 and 0 < c < 1 The marginal propensity to consume can then be written as A. K + c. B. K/Y + c/Y. C. c. D. K/Y + c. 1 out of 1 Correct. The answer is C. If Y rises by $1, consumption will rise by $c. This means that the marginal propensity to consume is c. See Section 171. 7 of 24 On the basis of the Keynesian consumption function, it was thought that the economy would experience “secular stagnation”. Why? A. The secularly falling marginal propensity to consume would lead to ever lower savings, lower investment, and lower income growth. B. The secularly falling average propensity to consume would lead to ever lower savings, lower investment, and lower income growth....
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 Spring '05
 malrani
 Economics

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