### Macroeconomics Practice Test - 13: Consumption

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1. There is a proportional relationship between consumption and disposable income

1. When the APC is the same for all levels of disposable income

2. When the consumption function is a straight line through the origin

3. When the MPC equals the APC for all levels of disposable income

4. All the above

2. Changes in subjective or objective factors

1. Never affect the consumption function

2. Always cause downward shifts of the consumption function

3. Always cause upward shifts of the consumption function

4. May cause upward or downward shifts of the consumption function

3. Keynes considered subjective and objective factors

1. Important determinants of consumption

2. Unimportant determinants of consumption

3. Determinants of investment

4. Determinants of business' willingness to supply

4. According to the permanent income hypothesis, all increases in

1. Permanent income are saved

2. Permanent income are consumed

3. Transitory income are saved

4. Transitory income are consumed

5. When current income includes a negative transitory component, relating consumption with current income will produce

1. An average propensity to consume that is lower than the long-run average propensity to consume

2. An average propensity to consume that is higher than the long-run average propensity to consume

3. An average propensity to consume that equals the long-run average propensity to consume

4. None of the above

6. The permanent income hypothesis is consistent with cross-section and time-series data because

1. Higher-income households are savers, since their current income includes positive transitory components

2. Higher-income households are savers, since their current income includes negative transitory components

3. Lower-income households are savers, since their current income includes negative transitory components

4. Lower-income households are dissavers, since their current income includes positive transitory components

7. According to the life-cycle hypothesis, consumption is related to

1. Current income

2. Past peak income

4. Price expectations over one's lifetime

8. Suppose a 25-year-old individual expects to earn $25,000 annually until retirement at age 70. When income is spent uniformly during the individual's lifetime and life expectancy is 80, the 1. Individual consumes$22,000 a year during the employment years

2. Individual's endowment at retirement is $204,545 3. Individual saves$4000 a year during the employment years

4. Individual's lifetime income is \$1.3 million

9. Suppose an individual intends to spend income uniformly during her or his lifetime During the employment years, the APC

1. Is constant when annual income is unchanged

2. Decreases with age when annual income increases during the individual's employment years

3. Increase with age when annual income decreases during the individual's employment years

4. All the above

10. Which of the following best describes the reasons for involuntary bequests?

1. Interest rates had increased in recent years

2. There was considerable uncertainty associated with expendiures during retirement

3. There were substantial gains in the stock market

4. Individuals wanted to leave an inheritance to their children