20 terms

Chapter 10 Study Guide

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