iffiffiffi*et Wrrkboo& for Chapter 5 : 1.. ll:::. i:r l!,,:. I lll Name Date Multiple- Choice Qrestions 7. The largest component of GDP is (t.03) a) net exporis c) consumption the letter that corresponds to the answer Circle best b) investment d) government purchases 1. Since 1955 Americans have been spending -. 8. The largest component of C is (L.Ol) iLO"jr a) durable goods a) a larger percentage of their incomes on services b) services b) a smaller percentage of their incomes on services c) nondurable goods -. c) about the same percentage of their incomes on servlces 9. The consumption function tells us that, as income 2. When the C line crosses the,l5-degree 1ine, saving is rises, consumption 1l-O3) a) declines (1_O3. -1) b) remains the same a) positive c) rises more slowll than income b) negative -. dt rises rnore quickly than income c) zero d) impossible to calculate because there is not 10. When income levels are very low, enough infbrmation to know C is (LO3) 3. When disposable income is zero, (LO5) a) zero a) autonomous consumption is equal to induced b) lower than income consumption c) higher-. than income b) autonomous consumption is equal to total I l. When income is equal to consumption. consumption saving is (t-(}3.:{-) c) induced consumption is equal to total consumption a) negative b) zero The minimurn amount that people wiil spend even if c) positive income is zero is called disposable d) impossible to calculate because there is consumption. (LO-5) insu ffi eient inlbnnation a) autonomous 12. Which of the following relations is nol b) induced coffect? (l-0 l. 2) c) total a) MPC +MPS : I d) I -APS :APC According to the permanent income hypothesis, if a b) APC+APS- I e) 1 -MPC:MPS person received a windfall of $100,000, he would c)MPS-MPC+1 spend that year. (LO7) 13. lnduced consumption expenditures (LO5) a) some of it c) nearly all of it a) fall as income rises b) most of it d) ail of it b) are always equal to autonomous consumption - expenditures -. (l-O-5; As disposable income rises, c) plus saving equals total consumption expenditures a) autonomous C rises c) induced C rises d) represent consumption that is independent of income b) autonomous C falls d) induced C lalls e) are influenced mainly by income -. 11t TZJ When disposable income is $2.000 billion. t4. Autonomous consumption expenditures are 18. consumption is (LO-r ) -_-. ( I-{15 ) billion d) $3,500 billion a) equal to induced consumption expenditures a) -$3,500 e) $4'000 billion b) proportional to disposable income b) 0 billion c) not influenced bY income c) $2,000 -. d) influenced primarily by the saving lunction l9 Which statement is the most accurate'l (l-O8) a) The American personal saving rate would be { l-{) I ) 1 ,s. The average propensity to save _---' higher if we counted capital gains as income that income divided by saving a) is disposable is not spent. of the adclitional saving generated by b) is a measure b) An average propensity to save of 0.02 means that income additional only 2 percent of the population is saving any c) is negative at very high income levels income. the d) varies directly with income; as income rises' c) Our 1ow saving rate is not considered a problem APS rises by many economists. d) Our government saving rate is aiways negative' 12,000 20. Our consumption spending tends to rise as the stock of liquid assets in the hands of consumers 10,000 and credit availabilitY a (l-()6) c B,OOO -o a) rises. rises b) falls. falls d) fails, rises c 6,000 c) rises. falls .E o- -. E Dianne Call earn $100,000 a year. They f 2I Boycl and a c into debt after paying $7-5'000 lbr therr o 4,000 went deeply (J daughter Chelsea's wedding and 550,000 for their daughter Kaylynne's sweet 16 party. Their behavtor 2,000 might best be described by _=-_-. tLO6. 7. 8l a) Milton Friedman 0 xx:<ePS 88 b) John Maynard KeYnes c\t +@@ c) Bruce Steinberg Disposable income ($ billions) d) Thorstein Veblen 22. As a nation's income falls. induced consumption {"igure 1 =-_-_-. 1LO5) Use the data in Figure I to answer questions 16 through l8 a) rises 16. Saving is equal to zero at a disposable income b) falis of_-. (l-0+) c) remains the same a)0 d) $6,000 billion L). Twenty years from now our disposable income will b) $2'000 billion e) $8,000 billion rise from $30 trillion to $3 I trillion. On the basis of in saving habits of American consumers, c) $4,000 billion past trends what would be your best guess regarding the increase at a disposable incorne i7. Consumption is equal to 5.000 in consumption during this period? (i-08) of =-. r l-{).r 1 a) S-50 billion c) $950 billion a) $2,000 billion d) $8'000 billion b) $500 billion d) $1.05 trillion b) $4,000 bitlion e) $ 10'000 biliion c) $6'000 billion 124 i 24. Which statement is the most accut'ate? tLO6, 8) -5. Dissaving takes piace when lI-O5) a) The American consumer was lirgel-v responsible for Induced consumption is induced by (l-O5 ) Japan's economic resurgence since World War lI. 6. b) China. as the rvorid's most populous country, has 7. According to the saving function,-. as disposable the world's largest consumer market. income rises, (LO:l) -. c) Although there are some who call the American consumer a world-class shopper. most Amencans 8. The most important determinant of the level of save substantial parts of their incomes. consumption is (LO6) d) Since we import most of our goods, the American -. economy has only a smail impact on the world's 9. The average propensity to consume in the United other large economies. (i-O States today is about-. I ) 25. Which statement is true'l (LO 1, 8) (LOl) a) Americans save much more of their incomes than 10. I -MPS:-. they did 20 years ago. 11. When the C iine crosses-. the 45-degree line, saving is b) ln 2012, ourAPC was a little beiow 1.0. equal to (LO3. -l-) c) Although the United States does not have the highest saving rate in the world, Americans save Problerns more money than the citizens of every other country. 1. Given the information shown in Table 1, calcuiate the negative the 1990s. d) Our APS has been since early APC and the APS. (LOl ) 26. Which statement is true? (LO6) a) Consumption spending accounts for about ffi.ffi 60 percent of our GDP. Disposable Inconte Consumption l b) The basic long-term trend in consumption spending as a percentage of GDP has been $ 10.000 $8,400 downward. c) The wealth efTect accounts for some additional consumption when people perceive themselves to 2. Given the inforrnation shown in Table 2, calculate the be wealthier. MPC and MPS. (Assume disposable income rises d) Were it not for tl.re wealth effect, most Americans, from 535,000 to $37,000.) (LO2) especialiy those who owned homes and corporate stock, would have cut back on their consumption i#ffiB-FHff-trffi even more, making the Great Recession more ffi.@*#ffi#c sevefe. YeiLr Disposable Income Saving Fill-In Qrestions 2002 $35,000 $4,600 2003 37.000 5,300 1. About percent of what Americans spend on consumption is spent on services. (I-Ol. 3) 3. Using the information in Figure 2, how much are 2. The average propensity to consllme is found by consumption and saving when disposable income - is: (LO3.'1) dividing by (LO I ) C Saving 3. The APS + the APC . (LO I ) a) $1,000 b) 2,000 i 1. The cofsumption function-. states thal c) 3.000 _. (LO3) rz) Using your answers from question 3a, calculate the APC and the APS. (LO 1. (,i . 5. Using your answers from questions 3a and 30, calculate the MPC and the MPS when disposable income rises fiom S1.000 billion to $2,000 billion. (LOl) a 6. Using the data in Figure 2, how much is autonomous EB .: consumption'? tL[J-i) e ov F o E af CI : C) a c '-€ 468 10 tz 'F ($ o- Disposable income trillions) E = ca () F igtrre 3 1 Use the data in Figure 3 to answer questions 9 through 12. rr 9. Determine incluced consumption when disposable - rri income is: (1,O5) iltl 123 a) 0 Disposable income ($ trillions) b) $6 trillion II c) $12 trillion liiglrz 2 l-- 10. When disposable income is $9 trillion: (l-O3..i) 7. Using the data in Figure 2, determine induced t- a) Hor'v much is autonomous consumption? consumption when disposable income is: (LO5) b) How much is total consumption? a) $1 trillion c) How much is saving? ,i b) $2 trillion u c) $3 trillion lt. When disposable income is $12 trillion: (LO I ) ,1. \ a) How much is the APC? 8. If C is $4 trillion, disposable income is $5 trillion, b) How much is the APS? and autonomous consumption is 53 trillion: (LO5) a) How much is saving? t2. In question 11: tLO2) Pr b) How much is induced consumption'? a) How much is the MPC? c) How much is the APS? b) How much is the MPS? The: d) If theAPS falls by 0.01, how much (in dollars) rndr', does saving fall? afe ( and .