Chapter 27

Question 1

45 DEGREE LINE

Answer 1

a line along which the value of GDP is equal to the value of aggregate expenditures

Question 2

CONSUMPTION SCHEDULE

Answer 2

schedule showing the amounts households plan to spend for consumer goods at different level of disposable income

Question 3

SAVINGS SCHEDULE

Answer 3

schedule that shows the amounts households plan to save, at different levels of disposable income

Question 4

AVERAGE PROPENSITY TO CONSUME

Answer 4

fraction of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income

Question 5

AVERAGE PROPENSITY TO SAVE

Answer 5

fraction of disposable income that households saves; saving divided by disposable income

Question 6

MARGINAL PROPENSITY TO CONSUME

Answer 6

fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income

Question 7

MARGINAL PROPENSITY TO SAVE

Answer 7

fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income

Question 8

APC+APS=

Answer 8

1

Question 9

MPC+MPS=

Answer 9

1

Question 10

non-income determinants of consumption and saving

Answer 10

shift of C and S

Question 11

PARADOX OF THRIFT

Answer 11

increased saving can be both good and bad for the economy

good in the long run when matched with increased investment spending

bad during a recession because it reduces spending

Question 12

INVESTMENT DEMAND CURVE

Answer 12

curve that shows the amounts of investment demanded by an economy at a series of real interest rates

Question 13

Determinants

Answer 13

1. Real interest rates

2. Rates of return