The consumption function.

Question

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Answer 1

Question

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

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Students have asked these similar questions

5. We learnt the following equation in the class: Ak = sy - (n + 8)k where y = ko. Now, I transform this equation into: Ak/k = sy/k - (n + 8). I want you to use a diagram to show the steady state solution of this equation (In the diagram, there will be two curves - one represents sy/k and one represents (n + 8). In the steady state, of course, Ak/k = 0). In this diagram, the x-axis is k. What will happen to this diagram if the value of n increases?

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3. A country has the following production function: Y = K0.2L0.6p0.2 where Y is total output, K is capital stock, L is population size and P is land size. The depreciation rate (8) is 0.05. The population growth rate (n) is 0. We define: y = ½, k = 1 and p = . Land size is fixed. L a) Find out the steady state values of k and y in terms of p, the per capita land size.

Answer 2

Question

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

Answer 6

Chapter 19, Problem 1QQ

To determine

The consumption function.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.

Economics Concept Introduction

Savings: Savings is defined as that part of income that is not consumed in the current period and is to be used for future consumption.

Answer 7

Chapter 19, Problem 1QQ

To determine

The consumption function.

Answer 8

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

According to the Keynesian consumption function, the saving rate in the economy increases as the income of the people increases. However, the data collected by Simon Kuznets reveals that the saving rate is stable. According to Keynes, the marginal propensity to consume is less than one and the average propensity to consume decreases as the income increases. This implies that as the income of people increases, the proportionate level of saving increases compared to the consumption. However, the studies conducted by Kuznets reveal that the average propensity to consume does not fall in the long run. This implies that the saving will not increase and hence it remains constant. Thus, option (b) is correct.

Option (a):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases. However, the studies conducted by Kuznets show that the saving rate is stable and it does not decrease in the long run. Thus, option (a) is incorrect.

Option (c):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable and it does not increase in the long run. Thus, option (c) is incorrect.

Option (d):

According to the Keynesian function, as the income of the people increases, the saving rate of the economy increases and it will not decrease. However, the studies conducted by Kuznets show that the saving rate is stable. Thus, option (d) is incorrect.