#1
Which of the following is not a component of aggregate consumption?
Government consumption
ExplanationGovernment spending is not considered a part of aggregate consumption but rather a component of government expenditure.
#2
Which of the following best describes the concept of marginal propensity to consume (MPC)?
The proportion of disposable income spent on consumption
ExplanationMPC reflects the percentage of additional income that individuals allocate towards consumption.
#3
Which of the following accurately describes induced consumption?
Consumption that varies directly with income changes
ExplanationInduced consumption refers to spending that fluctuates in direct proportion to changes in income.
#4
Which of the following factors is likely to lead to an increase in autonomous consumption?
An increase in government transfers
ExplanationRise in government transfers typically boosts autonomous consumption as individuals have more disposable income to spend.
#5
What does the Keynesian consumption function suggest?
Consumption increases with income, but at a diminishing rate
ExplanationKeynesian consumption function posits that as income increases, consumption rises, yet the rate at which consumption increases gradually slows.
#6
Which of the following factors is likely to increase the marginal propensity to consume (MPC)?
A decrease in income tax rates
ExplanationLower income tax rates typically lead to higher disposable income, thus increasing the propensity to consume.
#7
What is the relationship between consumption and disposable income in the Keynesian consumption function?
Direct relationship
ExplanationIn Keynesian economics, there is a direct positive relationship between consumption and disposable income.
#8
Which of the following is an example of an autonomous consumption expenditure?
Basic living expenses regardless of income level
ExplanationAutonomous consumption refers to spending that occurs regardless of changes in income, such as essential living expenses.
#9
What is the primary assumption of the permanent income hypothesis regarding consumption behavior?
Consumers base their consumption decisions on expected future income
ExplanationThe core premise of the permanent income hypothesis is that individuals primarily consider their anticipated future income when making consumption choices.
#10
In the context of aggregate consumption, what does the permanent income hypothesis suggest?
People base their consumption decisions on their permanent income
ExplanationThe permanent income hypothesis asserts that individuals' consumption patterns are influenced more by their expected long-term income rather than their current income.
#11
What effect does an increase in the interest rate have on aggregate consumption, according to the life-cycle hypothesis?
Increases saving but has no effect on consumption
ExplanationAccording to the life-cycle hypothesis, higher interest rates incentivize saving for future consumption, but they don't directly impact current consumption levels.
#12
According to the life-cycle hypothesis, how does an increase in expected future income affect current consumption?
Increases current consumption
ExplanationAnticipated higher future income tends to encourage current consumption as individuals feel more confident about spending.
#13
Which of the following is NOT a factor that influences aggregate consumption according to the permanent income hypothesis?
Past income
ExplanationThe permanent income hypothesis emphasizes future income expectations rather than past income levels as determinants of current consumption.
#14
What effect does an increase in the interest rate typically have on consumption in the context of the life-cycle hypothesis?
Decreases consumption
ExplanationHigher interest rates, as per the life-cycle hypothesis, usually lead to decreased current consumption as individuals opt to save more for future spending.