Chapter 5

The minimum amount that people will spend even if disposable income is zero is called consumption. (LO5) a) autonomous b) induced c) total

According to the permanent income hypothesis, if a person received a windfall of $\mathrm{\$}100,000$, he would spend that year. (LO7) a) some of it c) nearly all of it b) most of it d) all of it

The largest component of GDP is (LO3) a) net exports c) consumption b) investment d) government purchases

The largest component of $C$ is $(\mathrm{LO}3)$ a) durable goods b) services c) nondurable goods

The consumption function tells us that, as income rises, consumption $(\mathrm{LO}3)$ a) declines b) remains the same c) rises more slowly than income d) rises more quickly than income

When income levels are very low, $\mathrm{C}$ is $(\mathrm{LO}3)$ a) zero b) lower than income c) higher than income

When income is equal to consumption, saving is (LO3, 4) a) negative b) zero c) positive d) impossible to calculate because there is insufficient information

Which of the following relations is not correct? (LO1, 2) a) $\mathrm{MPC}+\mathrm{MPS}=1$ d) $1-\mathrm{APS}=\mathrm{APC}$ b) $\mathrm{APC}+\mathrm{APS}=1$ e) $1-\mathrm{MPC}=\mathrm{MPS}$ c) $\mathrm{MPS}=\mathrm{MPC}+1$

Autonomous consumption expenditures are (LO5) a) equal to induced consumption expenditures b) proportional to disposable income c) not influenced by income d) influenced primarily by the saving function

Which is the most accurate statement? (LO8) a) The American personal savings rate would be higher if we counted capital gains as income which is not spent. b) An average propensity to save of $.02$ means that only 2 percent of the population is saving any of their income. c) Our low savings rate is not considered a problem by many economists. d) Our government savings rate is always negative.