Suppose that the consumption function is C- $500+ 0.8YD, where YD is disposable income. The marginal propensity to consume is: O $500. O 0. 0.8
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- If disposable income rises from $15,000 to $20,000 and the marginal propensity to consume equals 0.85, then saving must increase by: O $500 O $750 $1,000 O $2,000 O $4,250When the consumption function lies above the 45-degree line, households * O Spend on consumption an increasing percentage of any increase in income O Spend on consumption a decreasing percentage of any increase in income O Are dissaving O Save all of any increase in incomeGiven the consumption function C = $758 + 0.75 x Y, an increase in disposable income from $7,640 to $9,080 will cause consumption to increase by: O $360 O $800 O $1,080 $1,440 O $7,568
- Let's incorporate the labor-leisure trade-off and capital income taxes in the two-period model. Let c₁, c₂ be consumption in two periods, I the number of hours worked, Te Te the proportional taxes on consumption in 2 periods, s the saving rate, w the wage rate, b pension in the 2nd period, and 7, the tax on savings (capital income tax). The household's maximization problem in this case is: given by maxe₁,e2,8,1-1 log(c₁) + log (1-1)+5log (c₂) such that (1+T₂) C₁+8 = (1-7)wl and (1+T₂)C₂ = [1+r(1-Ts)]s+b, where measures how the household values leisure vis-a-vis consumption.Malita has K150 of disposable income to spend each week and cannot borrow money. She buys Milk balls and a composite good. Suppose that Milk balls cost K2.50 per bag and the composite good costs K1 per unit.Sketch Malita’s budget constraint.What is the opportunity cost, in terms of bags of Milk balls, of an additional unit of the composite good?Suppose that in an inflationary period the cost of the composite good increases to K1.50 per unit, but the cost of Milk balls remains the same. Sketch the new budget constraint.What is the opportunity cost of van additional unit of the composite good?Suppose now Malita demands a pay raise to figjht the inflation. Her boss submits and raises her salary so that her disposable income is now K225 per week. Sketch the new budget constraint. Is Malita better off?What is the opportunity cost of an additional unit of the composite good?Question: How can there be "Autonomous Spending" even when a person has zero income? O a) All of the above are correct. b) People need to consume at least a minimum to stay alive. UO People need a certain level of consumption even if they do not have income. O d) People spend money from their savings, borrowing or from unemployment or pension pay.
- Suppose that firm uses 3 units of labor (L) with 4 units of capital (K) in fixed proportion. Which of the following is correct? The law of diminishing MRTSLK holds and thus Lagrange multiplier method is applicable MRTSL,K is not well defined and thus Lagrange multiplier method is applicable The law of diminishing MRTSLK holds and capital and labor are perfect complements. O MRTSLK is not well defined and thus Lagrange multiplier method is not applicableIf consumption is $30,000 when income is $40,000, and consumption increases to $34,000 when income increases to $45,000, the MPC is Select one: O a. None of the options O b. 0.8 O c. 0.2 O d. 0.4Figure 7.1 C b. 100 In Figure 7.1, all of the following is true except: An additional dollar of income always induces some additional consumption. O There is some level of consumption that is independent of income. O The marginal inclination to consume is greater than zero. O At zero income there is zero consumption.
- An additional unit of Old Product X will bring Cindy an MU of 15 utils, an additional unit of New Product Y will bring Cindy an MU of 30 utils, and an additional unit of New Product Z will bring Cindy an MU of 40 utils. If a unit of Old Product X costs $10, a unit of New Product Y costs $30, and a unit of New Product Z costs $20, which product will Cindy prefer to spend her money on? a. Old Product X. b. New Product Y. c. New Product Z. d. More information is required.If the MU per dollar spent on product A is greater than on product B, then a rational consumer should consume more of product B to compensate. Select one: O True O FalseIt takes Richard two hours round-trip to drive from where he lives in Fayetteville to Raleigh. He currently plans to take seperate trips to purchase a new car and a new motorcycle. In Fayetteville, a new car costs $25,000: in Raleigh the new car costs 12% less or $22,000. In Fayetteville, a new motorcycle costs $15,000: in Raleigh, a new motorcycle costs 16% less or $12,600. Is Richard more likely to purchase one of these goods in Raleigh?