Chapter 10 Study Guide

20 terms by wittwejl

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Disposable income equals:

Consumption + Savings

The amount of consumption in an economy depends

Upon the level of disposable income

The primary determinant of the level of consumption and saving in the economy is the:

Level of Income

The consumption schedule shows the relationship of household consumption to the level of:

Disposable income

When a consumption schedule is plotted as a straight line, the slope of that line is:

Less than 45˚

When the consumption schedule is plotted on a graph:

Consumption is on the vertical, and Disposable income is on the horizontal.

A direct relationship between consumption and disposable income is shown by the:

Consumption Schedule

As disposable income decreases, consumption:

Both Consumption and Savings Decrease

The average propensity to consume is consumption:

Consumption divided by income

The MPC can be defined as the:

Change in consumption divided by change in income

The saving schedule shows the relationship of saving of households to the level of:

Disposable Income

Dis-saving occurs when:

Consumption is greater than disposable income

A lower real interest rate typically induces consumers to:

Buy on credit

A higher real interest rate typically induces consumers to:

Save more

Determine ROR and apply to a situation

If the ROR is better than the market you should invest it.

Which would increase investment demand?

Decrease in taxes

Which would decrease investment demand?

Increase in capital prices

The multiplier effect

Change in real GDP divided by the initial change in spending

Generally speaking, the greater the MPS, the:

MPC decreases and the value of the Multiplier decreases

The value of the multiplier is likely to fall if there is a fall in:

MPC decreases

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