8. Investment is A. the production of goods for immediate satisfaction. B. the p
ID: 1138571 • Letter: 8
Question
8. Investment is
A. the production of goods for immediate satisfaction.
B. the purchasing of stocks and mutual funds.
C. spending by consumers on items that account for large shares of their budgets.
D. spending by businesses on things which can be used to produce goods and services in the future.
9. According to the permanent income hypothesis, Lisa's consumption increases only when
A. her income increases unexpectedly.
B. she saves more.
C. her average lifetime income increases.
D. her current income increases.
10. If the MPC is unchanged and autonomous consumption expenditures increase, then
A. the break-even disposable income decreases.
B. saving at every level of disposable income increases.
C. the break-even disposable income increases.
D. saving is unaffected.
11. If the marginal propensity to save (MPS) increased from 0.3 to 0.4, this would cause the multiplier effect to
A. increase.
B. stay the same.
C. decrease.
D. None of the above is correct.
12. Which one of the following statements is true?
A. In the Keynesian model, the supply of saving is determined by the level of investment.
B. In the classical model, the supply of saving is determined by the level of income.
C. In the classical model, the supply of saving is determined by the rate of interest.
D. In the Keynesian model, the supply of saving is determined by the rate of interest.
13. Assuming that Yd = $10,000 and C = $12,000, we would find that the average propensity to consume would be equal to
A. 0.8.
B. 1.2.
C. 0.9.
D. 1.1.
Explanation / Answer
8.
Investment can be defined as the purchase of those goods which are used for the production some another goods. This is done by the businessmen only. For example machinary.
Hence option D is the correct answer.
D. spending by businesses on things which can be used to produce goods and services in the future.
9.
According to permanent income hypothesis, the consumption depends on life time average permanent income and not on the transitory income.
Hence according to the permanent income hypothesis, Lisa's consumption increases only when her average lifetime income increases.
Hence option C is the correct answer.
C. her average lifetime income increases.
10.
Consumption function;
C= a+ MPC(Yd)
The break even income is that income level where consumption expenditure is equal to the disposable income. So If the MPC is unchanged and autonomous consumption expenditures (a) increase, then break even disposable income (Yd) decreases.
Hence option a is the correct answer.
Option A; the break-even disposable income decreases.
11.
As it has been given that If the marginal propensity to save (MPS) increased from 0.3 to 0.4.
Multiplier = 1/MPS
when MPS=0.3
Multiplier=1/0.3=3.33
when MPS=0.4
Multiplier=1/0.4=2.5
it means multiplier decreases.
Hence option C is the correct answer.
C. decrease.
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