1 Independent consumption a Represents a component of consum

1.) Independent consumption

a) Represents a component of consumption that is independent of the disposable income.

b) Decreases when consumer wealth goes down.

c.) Decreases when consumer wealth goes up.

d.) Represents the minimum level of consumption when disposable income is zero.

e) a, b and c.

2.) Which of the following shifts the investment curve upward?

a) An increase in disposable income.

b) A decrease in the rate of inflation.

c) A decrease in the real interest rate.

d) None of the above.

3.) Everything else constant, inflation

a) Leads to an increase in a country’s net exports.

b) Leads to a reduction in a country’s net exports.

c) Increases the inventories below the desired level.

d) b and c.

e) a and c.

4.) A recessionary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

Solution

a is correct

Independent consumption does not depend on income. It is the level which is consumed even when income is 0

2) d is correct

Upward shift in investment demand curve shows an increase and investment demand increases due to factors like technological advancements, decrease in price of capital, etc. None of the given reasons lead to increase in investment.

3) e is correct

Inflation leads to decrease in exports as foreign country find our goods expensive now. Also inventories increase as people buy less at higher prices.

4) d is correct

Recessionary gap is a situation where output is below full employment level. Both government deficit and inadequate lead to recessionary gap