#1
1. In the context of economics, what is Aggregate Consumption?
The total spending on goods and services by households
ExplanationTotal household spending on goods and services
#2
6. What is the relationship between the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS)?
MPC * MPS = 1
ExplanationThe product of MPC and MPS equals 1
#3
11. What is the main idea behind the Permanent Income Hypothesis?
Consumption is based on permanent income expectations
ExplanationConsumption is anchored in expectations of permanent income
#4
16. According to the Permanent Income Hypothesis, how do individuals adjust their consumption in response to temporary changes in income?
Gradual adjustment over time
ExplanationConsumption changes gradually in response to temporary income fluctuations
#5
21. According to the Permanent Income Hypothesis, how does an unexpected increase in income impact consumption?
Immediate and full adjustment
ExplanationConsumption immediately and fully adjusts to unexpected income changes
#6
2. What is the formula for the Aggregate Savings in an economy?
Aggregate Savings = Income - Consumption
ExplanationSavings equals income minus consumption
#7
3. Which of the following factors is likely to increase Aggregate Consumption?
An increase in government transfers to households
ExplanationGovernment transfers to households boost consumption
#8
7. How does an increase in consumer confidence impact Aggregate Consumption?
Increases Aggregate Consumption
ExplanationRising consumer confidence boosts aggregate consumption
#9
8. According to the Keynesian consumption function, what is the main determinant of consumption in the short run?
Disposable income
ExplanationDisposable income drives short-term consumption in Keynesian theory
#10
12. How does an increase in interest rates typically affect Aggregate Consumption?
Decreases Aggregate Consumption
ExplanationAggregate consumption tends to decline with rising interest rates
#11
13. What role does the wealth effect play in influencing consumption decisions?
As wealth increases, consumption increases
ExplanationHigher wealth corresponds to higher consumption levels
#12
4. What does the Permanent Income Hypothesis suggest about consumption behavior?
Consumption is based on permanent income expectations
ExplanationConsumption behavior relies on expected permanent income
#13
5. According to the Life Cycle Hypothesis, how does an individual's consumption behavior change over the life course?
Increases steadily over the entire life
ExplanationConsumption rises consistently throughout life
#14
9. How does the Paradox of Thrift relate to Aggregate Savings and Consumption in an economy?
Increased savings lead to decreased consumption
ExplanationMore saving results in less consumption, posing an economic paradox
#15
10. What is the significance of the permanent income concept in explaining long-term consumption behavior?
Consumption is influenced by expected future income
ExplanationExpected future income shapes long-term consumption
#16
14. According to the Life Cycle Hypothesis, how does an individual's consumption behavior change over the life course?
Increases steadily over the entire life
ExplanationConsumption consistently rises over an individual's lifespan
#17
15. What is the difference between autonomous consumption and induced consumption in the Keynesian consumption function?
Autonomous consumption is independent of income, while induced consumption depends on income
ExplanationAutonomous consumption is income-independent; induced consumption varies with income