3. Consumption function and non-income determinants The following graphs show an economy's initial position at point A along its consumption function (C). Suppose disposable income increases. On the graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in disposable income. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.) REAL CONSUMPTION (Billions of dollars) REAL DISPOSABLE INCOME (Billions of dollars) Now suppose that rising home values increase households' net wealth. On the following graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in households' net wealth. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.)

3. Consumption function and non-income determinants The following graphs show an economy's initial position at point A along its consumption function (C). Suppose disposable income increases. On the graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in disposable income. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.) REAL CONSUMPTION (Billions of dollars) REAL DISPOSABLE INCOME (Billions of dollars) Now suppose that rising home values increase households' net wealth. On the following graph, shift either the consumption curve or the initial point on the consumption function to show the impact of an increase in households' net wealth. (Note: In the scenario where the curve shifts, only shift the curve and do not adjust the position of the point.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. The positive relationship between consumption expenditure and disposable income can be shown by a positive slope of consumption curve. Answer: Reason: O Accessibility: Investigate hp
Draw the consumption function as the relation of the consumer's income and expenditure. What does the slope of the consumption function depend on? Is the consumer's income the only factor determining the level of his consumption spending?
assume you are given a $100 raise, and decide to save $20 of that money. also assume that if you make zero income in a year, you will still spend $7000. a.) what is your consumption function? b.) if you earn $20000 in a year how much will you spend? c.) will you be able to save while earning the above income?
One of these four answers best explains the effect of disposable income on consumption. Which one? O Disposable income does not determine consumption. O Disposable income is the most powerful determinant of income and determines how much an individual consumes. O When an individual has more disposable income, he or she is likely to consume less. O Disposable income is an important determinant of expected future income.
Question 5 ÉV and CV 1. Define equivalent variation. Use either a formula or explain in words. 2. Define compensating variation. Use either a formula or explain in words.
Question 4 Explain how does a decrease in the current income y affect the consumer's consumption-saving decision. In particular, explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Are there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers and one for the lenders.
The accompanying graph represents the aggregate consumption function for the small island nation of Pineapple Paradise. The people of Pineapple Paradise expect their future 10,000 disposable income to increase. Use the graph to show an 9,000 increase in consumption expenditures. 8,000 7,000 What is the new level of aggregate autonomous consumer ,000 Aggregate Consumption Function spending? ,000 $2000 4,000 $4000 3,000 $1000 O $3000 2,000 1,000 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Disposable Income Çonsumer Spending,
Figure 2 C3 C2 C1 45° Y2 Y1 Aggregate income Aggregate saving
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Figure 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.
9- What could be the reason of shifting of consumption line upward from 1 to 3 as it is plotted in the Graph? C'= C+c Y. C,(Consumption) C= Co + c Yd (initial stage) 2 3 Cl"= C + c Y4 Sa Co Yd (Income) a) An increase in marginal propensity to consume b) An increase in autonomous consumption c) A decrease in autonomous consumption d) A decrease in Income e) An increase in Income
if we are studying the relationship .4 between consumption (C) and disposable income (Yd), wealth (W) then we reach the following results Ci=20+ 0.75*Ydi + 0.01*Wi if Ydi=1000, wealth =10000 and disposable income Yd increase by 100 then consumption will change * ???????????????by