9. At the point where the disposable income line intersects the consumption func
ID: 1225076 • Letter: 9
Question
9. At the point where the disposable income line intersects the consumption function, saving:
A. equals consumption.
B. equals disposable income.
C. is less than zero.
D. is equal to zero.
E. is greater than consumption.
10.If disposable income is $400 billion, autonomous consumption is $60 billion, and MPC is 0.8, what is the level of saving?
A. $20 billion
B. $210 billion
C. $340 billion
D. $380 billion
E. $460 billion
11.If the marginal income is $5,000 and the marginal propensity to save is 0.30, savings is:
A. $90
B. $1,590
C. $3,500
D. $1,500
E. None of the above
12.If your disposable income falls from $55,000 to $50,000 and your consumption falls from $40,000 to $38,000, your marginal propensity to save is:
A. 0.2
B. 0.3
C. 0.6
D. 0.8
E. None of the above
13.Which of the following will increase investment spending?
A. More optimistic business expectations
B. An increase in interest rates
C. An increase in business taxes
D. A decrease in capacity utilization
E. All of the above
Explanation / Answer
9. D. is equal to zero
Disposable income is the income left after paying taxes. If this income is equal to consumption that means entire income in consumed. So person is left with zero saving.
10. A. $20 billion
C = Autonomous consumption + MPC X Disposable income
C = 60 + 0.8(400 million) = 60 million + 320 million = 380 million
Income = Consumption + Saving
400 million = 380 million + Saving
Saving = $ 20 million
11. MPS = Marginal saving / Marginal income
0.3 = Marginal saving / 5,000
Marginal saving = 0.3 X 5000 = $ 1,500
Correct answer is D. $1,500
12. MPS = Change in saving / Change in income
Initial saving = Income - consumption = 55,000 - 40,000 = 15,000
New saving = 50,000 - 38,000 = 12,000
Change in saving = 3,000
Change in income = 5,000
MPS = 3,000/5,000 = 0.6
Therefore, correct answer is C. 0.6
13. A. More optimistic business expectations
If businessmen have favourable future expectation then investment spending by person increases.
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