Consumption, Saving and Investing and Investment

Consumption, Saving and Investing and Investment

T F 1. The consumption schedule which is employed as a tool is also an historical record of the relationship of consumption to disposable income.

T F 2. Empirical data suggest that households will tend to spend a smaller portion of a small disposable income than of a larger disposable income.

T F 3. An increase in the price level will increase the consumption schedule (shift it upward).

T F 4. An increase in taxes paid by consumers will decrease both the amount they spend for consumption and the amount they owe.

T F 5. Both the consumption schedule and the saving schedule tend to be relatively stable over time.

• Why do the sum of the APC and the APS and the sum of the MPC and the MPS always equal exactly one? ______

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T F 6. The real interest rate is the nominal rate minus the rate of inflation.

T F 7. A business will purchase additional capital goods if the rate of interest it must pay exceeds the expected rate of net profits from the investment.

T F 8. An increase in an economy’s income may induce an increase in investment spending

T F 9. The investment-demand schedule tend to be relatively stable over time.

T F 10. The irregularity of innovations and the variability of business profits contribute to the instability of investment expenditure.

Explain:

a. when a business firm will or will not purchase additional capital goods

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b. how changes in the five noninterest determinants of investment spending will affect the investment-demand curve

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c. why investment spending tends to rise when the rate of interest falls

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d. how changes GDP might affect investment spending

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Explain why the amount consumers spend and the amount investors spend matter all that much to the performance of the economy.

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