Macroeconomics for Today (MindTap Course List)
Macroeconomics for Today (MindTap Course List)
9th Edition
ISBN: 9781305507142
Author: Irvin B. Tucker
Publisher: Cengage Learning
Question
Book Icon
Chapter P4, Problem 1KC
To determine

 The reason that will not cause the shift in the consumption function.

Expert Solution & Answer
Check Mark

Answer to Problem 1KC

Option 'd' is correct.

Explanation of Solution

The economic growth is the increase in the inflation adjusted market value of goods and services in the economy over a time period. The main element that helps to the economic growth is the consumption of the goods and the services by the consumers. The consumption is done on the basis of the disposable income of the consumers and the relation between the consumption and the disposable income of the consumers is known as the consumption function.

Option (d):

When there is a change in the disposable income of households, there will be changes in the consumption pattern of a consumer. When the disposable income increases, it increases the quantity demanded and when the disposable income decreases, it decreases the quantity demanded. This means that there will be a movement along the same consumption function and there will be no shift in the consumption function. Hence, option 'd' is correct.

Option (a):

For example, when the real assets change for a consumer, the real value of money for a consumer also changes. When there is an increase, it increases the money balance of a consumer which helps him to consume more than what he was able to consume in the previous period and vice versa when the real asset value decreases. Therefore, there will be a shift in the consumption function and option 'a' is incorrect.

Option (b):

The interest rate determines the consumption function of an individual. When the rate of interest is higher, consumers will consume less and save more and vice versa. Thus, the changes in the interest rate of the economy shift the consumption function. Hence, option 'b' is incorrect.

Option (c):

The expectations of the price change are an important factor that leads to the shift in the consumption function. The decrease in the price level increases the real balances of the consumer, whereas the increases in the price level decreases the real balances that cause the shift in the consumption function. Hence, option 'c' is also incorrect.

Option (e):

The taxation determines the income of consumers. When the tax rate is decreased, it increases the income of consumers and vice versa when the tax is increased. Hence, the changes in the taxation policies lead to the shift in the consumption function and option 'e' is incorrect.

Economics Concept Introduction

Consumption function:  The consumption function is an economic formula that represents the functional relationship between the total consumption and the gross national income of the economy.

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!
Students have asked these similar questions
A hospital charges $200 for a medical procedure, and 1,000 patients use the service. The hospital raises the price to $250, and the number of patients drops to 900. Calculate the price elasticity of demand (PED) and explain your answer. (show all working) Briefly explain how elasticity affects government health policies in the following cases: • Taxes on unhealthy products (cigarettes, alcohol, sugary drinks) • Subsidizing Preventive Care (e.g., vaccines, screenings) Drug Price Controls & Generic Substitutions Co-Payments & Insurance Design
Assume the United States is a large consumer of steel, able to influence the world price. DUS and SUS denote its demand and supply schedules in Figure 1. The overall (United States plus world) supply schedule of steel is denoted by SUS.+W. Figure 1 Import Tariff Levied by a Large Country Answer all questions (a-f) by referring to Figure 1 above. a) Calculate the free trade market equilibrium price, domestic consumption, and volumE Answer all questions (a-f) by referring to Figure 1 above. a) Calculate the free trade market equilibrium price, domestic consumption, and volume of steel imports by the US. [5 marks] b) Suppose the United States imposes a tariff (t) of $100 on each ton of steel imported. With the tariff, calculate the price of steel and the volume of steel imports by the US. [5 marks] c) Of the $100 tariff, how much is passed on to the US consumer via a higher price, and how much is borne by the foreign exporter? [5 marks] d) Calculate the tariff's deadweight welfare loss to…
1. A doctor quits his job, which pays $77,000 per annum, to open a non-governmental organization (NGO) to serve the needs of orphans. His annual expenses for the NGO amounts to $62,700 for food and daily supplies, $9,400 for maintenance, and $1,800 for books. What is his opportunity cost of opening the NGO? (Show working) 2. During the COVID-19 pandemic, hospitals worldwide faced severe resource constraints, including: a. Limited ICU beds b. Shortage of ventilators c. Insufficient doctors and nurses d. Lack of vaccines in early 2021 Governments and hospitals had to make critical decisions about who receives treatment first and how to allocate limited resources efficiently. In no more than 150 words and using core economic concepts of scarcity, choice and opportunity cost, how would you help your government make these critical decisions?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,