Answer to Question #134881 in Macroeconomics for December

Question

26. The consumption function is based on the premise that as income increases, consumption
expenditure…
[1] increases by a smaller amount than income.
[2] increases by a larger amount than income.
[3] increases by the same amount as income.
[4] remains constant unless saving also changes.
27 The equation C = 75 + 0,7Y, where C is consumption and Y is disposable income, tells us that…
[1] households will consume R75 if their disposable income is zero and will consume 0,7 of any
increase in disposable income they receive.
[2] households earn R75 and spend three quarters of their income.
[3] households will save R75 if their disposable income is zero and will consume 0,7 of any
increase in disposable income they receive.
[4] households will consume 0,30 of whatever level of disposable income they receive.

Answer 1

26. The consumption function is based on the premise that as income increases, consumption

expenditure…

[1] increases by a smaller amount than income.

[2] increases by a larger amount than income.

[3] increases by the same amount as income.

[4] remains constant unless saving also changes.

Answer: [1] increases by a smaller amount than income.

27 The equation C = 75 + 0,7Y, where C is consumption and Y is disposable income, tells us that…

[1] households will consume R75 if their disposable income is zero and will consume 0,7 of any increase in disposable income they receive.

[2] households earn R75 and spend three quarters of their income.

[3] households will save R75 if their disposable income is zero and will consume 0,7 of any

increase in disposable income they receive.

[4] households will consume 0,30 of whatever level of disposable income they receive.

Answer: [1] households will consume R75 if their disposable income is zero and will consume 0,7 of any increase in disposable income they receive.