\"Induced consumption\" is the amount of consumption spending created by Disposa

Question

"Induced consumption" is the amount of consumption spending created by Disposable income Wealth Consumer confidence Interest rates None of the above The simple consumption function used in lecture & in the text is Linear Convex Concave Oscillating None of the above The difference between GDP and total planned spending is Foreign capital inflows Autonomous consumption Planned investment Net taxes None of the above Which type of spending includes an unplanned component? Consumption Investment Government spending Net exports None of the above The "accelerator principle" refers to the interaction between Real GDP and consumption Consumption and taxes Taxes and investment Investment & real GDP None of the above

Explanation / Answer

(1) (a)

Induced consumption is that component of consumption which varies with (disposable) income.

(2) (a)

Simple consumption function is linear of form: C = a + bY

(3) (e)

GDP - Total planned spending = Unplanned spending

(4) (b)

Investment includes an unplanned component, because if planned output is not sold, there is an unplanned increase in the inventory which is considered as Investment.

(5) (d)

Accelerator principle says that if demand of output increases, demand for investment (capital) components increase by a higher percentage.

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