module 16 Income and Expenditure 171
Section 4 National Income and Price Determination
c. level of actual investment spending.
d. interest rate.
e. all of the above.
- Actual investment spending in any period is equal to
a. planned investment spending +unplanned inventory
investment.
b. planned investment spending −unplanned inventory
investment.
c. planned investment spending +inventory decreases.
d. unplanned inventory investment +inventory increases.
e. unplanned inventory investment −inventory increases.
Tackle the Test: Free-Response Questions
Answer (7 points)
1 point:0.8
1 point:$47,000
1 point:Vertical axis labeled “Consumer spending” and horizontal axis labeled
“Current disposable income”
1 point:Vertical intercept of $15,000
1 point:Upward sloping consumption function
1 point:0.8
1 point:Consumption function shifts downward
- List the three most important factors affecting planned
investment spending. Explain how each is related to actual
investment spending.
Consumer
spending
Current disposable income
$15,000
cf 2
cf 1
0
- Use the consumption function provided to answer the
following questions.
c=$15,000+0.8×yd
a. What is the value of the marginal propensity to consume?
b. If individual household current disposable income is
$40,000, individual household consumer spending will
equal how much?
c. Draw a correctly labeled graph showing this consumption
function.
d. What is the slope of this consumption function?
e. On your graph from part c, show what would happen if
expected future income decreased.