Simple economies can be described in terms of three major economic flows. Which of the following options is correct?  income, spending and saving  income, spending and exports  income, saving and production  income, consumption and production  None of options  to  is correct. 3.2. In the simplest possible Keynesian macroeconomic model …  the money market plays an important role.  government is an important employer of factors of production.  households import products and sell their production on international markets.  wages are flexible.  production adjusts to changes in spending. 3.3. The consumption function shows …  that the MPC increases in proportion to the GDP.  that households consume more when interest rates are low.  that consumption depends primarily on the level of business investment.  the amounts households plan or intend to consume at various possible levels of aggregate income.  that consumption may be zero if the population is very poor.
ECS1601/101/3/2017 39 3.4. The consumption function is based on the premise that as income increases, consumption expenditure …  increases by the same amount.  increases by a smaller amount.  increases by a larger amount.  remains constant since the consumption function does not shift.  remains constant unless saving also changes. 3.5. Which of the following statements is correct?  Consumption spending is a smaller variable than investment in the simple Keynesian model.  Investment spending is smaller but more constant than consumption spending.  Investment spending is smaller but less predictable than consumption spending.  The investment decision involves only the cost of capital goods.  There is a direct relationship between the interest rate and the expected return on investment spending. 3.6. In the aggregate expenditures model, the size of the MPC is assumed to be …  less than zero.  greater than one.  greater than zero, but less than one.  greater than zero, but less than ten.  equal to income. 3.7. The equation C = 35 + .75Y, where C is consumption and Y is income, tells us that …  households will consume three-fourths of whatever level of disposable income they receive.  households will consume R35 if their disposable income is zero and will consume three- fourths of any increase in disposable income they receive.  there is an inverse relationship between disposable income and consumption.  households will save R35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.  induced consumption is zero. 3.8. In the simple Keynesian model which of the following is not correct?  C equals total consumption spending.  Y equals income.  Induced consumption is MPC*Y.  MPC + MPS = 1.  Equilibrium is where C=Y.