# C4.pdf - Chapter 4 Consumption Saving and Investment...

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Chapter 4 Consumption, Saving, and Investment T Multiple Choice Questions 1. Desired national saving equals (a) Y C d G . (b) C d + I d + G . (c) I d + G . (d) Y – I d G. Answer: A Level of difficulty: 1 Section: 4.1 2. With no inflation and a nominal interest rate ( i) of .03, a person can trade off one unit of current consumption for _____ units of future consumption. 3. The desire to have a relatively even pattern of consumption over time is known as 4. When a person gets an increase in current income, what is likely to happen to consumption and saving?
Chapter 4 Consumption, Saving, and Investment 51 5. Last year, Linus earned a salary of \$25,000 and he spent \$24,000, thus saving \$1000. At the end of the year, he received a bonus of \$1000 and he spent \$500 of it, saving the other \$500. What was his marginal propensity to consume? (a) 0.96 (b) 0.50 (c) 0.04 (d) 0.02 Answer: B Level of difficulty: 2 Section: 4.1 6. The fraction of additional current income that a person consumes in the current period is known as the 7. An increase in expected future output while holding today’s output constant would 8. When a person receives an increase in wealth, what is likely to happen to consumption and saving? 9. Aunt Agatha has just left her nephew \$5000. The most likely response is for her nephew to (a) increase current consumption, but not future consumption. (b) decrease current consumption, but increase future consumption. (c) increase future consumption, but not current consumption. (d) increase both current consumption and future consumption. Answer: D Level of difficulty: 1 Section: 4.1
52 Abel/Bernanke • Macroeconomics, Fifth Edition 10. The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was