# Consumption and income relationship quiz

### Quiz & Worksheet - Theory of Consumption in Economics | nickchinlund.info

Answer All questions on ANSWER SHEET. 1. The consumption function. A) describes the relation between desired consumption expenditure. What is the relationship between consumption and the following economic variables: household income, wealth, household's expectations about the future, and. Consumption Function: Relationship Between Marginal & Average Propensity to Consume. Chapter 7 If you take this quiz, you'll be asked particularly about.

In the figure, this means that the change in the money income of the consumer will shift the budget line B1 outward parallel to itself to B2 where the bundle X' bundle will be chosen. Again, an increase in the money income of the consumer will push the budget line B2 outward parallel to itself to B3 where the bundle X" will be the bundle which will be chosen.

Thus, it can be said that, with variations in income of the consumers and with the prices held constant the income—consumption curve can be traced out as the set of optimal points. Income—consumption curve for different types of goods[ edit ] In the case illustrated with the help of Figure 1 both X1 and X2 are normal goods in which case, the demand for the good increases as money income rises.

As the income of the consumer rises,and the consumer chooses X0 instead of X' i. In that case, X1 would be called an inferior good i. Thus, a rise in income of the consumer may lead his demand for a good to rise, fall or not change at all. It is important to note here that, the knowledge of preferences of the consumer is essential to predict whether a particular good is inferior or normal.

Normal goods[ edit ] Figure 2: Income-consumption curve for Normal goods In the figure 2 to the left, B1, B2 and B3 are the different budget lines and I1, I2 and I3 are the indifference curves that are available to the consumer. As shown earlier, as the income of the consumer rises, the budget line moves outwards parallel to itself.

The greater the shifts of the demand curve to the right, the greater the income-elasticity of demand. In such a case, the goods will be normal goods. Movement upward along the consumption function. An upward shift in the consumption function.

### Tucker Quiz: The Keynesian Model

Movement downward along the consumption function. A downward shift in the consumption function. Real disposable income, the consumption function.

Interest rates, real disposable income. Interest rates, expectations of future business profit. Expectations of future business profit, real disposable income. Which of the following will most likely cause an outward shift in a firm's investment demand?

A decrease in interest rates. Low levels of existing capacity utilization. Expectations of higher future business profitability.

## What is Consumption in Economics? - Definition & Theory

An increase in interest rates. Keynes argued that investment spending in the short run is an autonomous expenditure that does not vary with the current level of real disposable income. Which of the following correctly describes the aggregate expenditures function? The sum of real disposable income and investment expenditures.