Chapter 8

Question 1

Average propensity to consume (APC)

Answer 1

The percentage of disposable income spent

Question 2

Average Propensity to Save (APS)

Answer 2

The percentage of disposable income saved

APC + APS = 1

Question 3

Marginal Propensity to Consume (MPC)

Answer 3

The change in consumption divided by the change of disposable income

MPC=Change in Consumption/Change in DI x 100%

Question 4

Marginal Propensity to Save (MPS)

Answer 4

The change in saving divided by the change of disposable income

MPC = Change in Saving/Change in DI x 100%

Question 5

Autonomous Saving

Answer 5

Our level of consumption when disposable income is 0

Question 6

Induced Consumption

Answer 6

That part of consumption which varies with the level of disposable income

Question 7

Consumption Theory

Answer 7

Consumption = Autonomous Consumption + Induced Consumption

C = A + MPC x DI

Question 8

Investment

Answer 8

The purchase of new plant, equipment, and buildings and the additions to inventories

Question 9

Determinant of Investment

Answer 9

Expected Profit Rate
Expected profits/Money invested x 100%

Interest Rate: the cost of borrowing money
Interest paid/Amount borrowed x 100%

Question 10

Direct Taxes

Answer 10

Tax with your name on it

Income Tax
Social Security
Medicare
Medicaid

Question 11

Indirect Taxes

Answer 11

Tax on goods

Sale Tax 
Capital Gain in Tax 
Property Tax 
Excise Tax 
Tariff

Question 12

Deficit

Answer 12

Quarterly, yearly, etc.

Question 13

Debt

Answer 13

Accumulated

Question 14

Disposable Income

Answer 14

The amount of income left to an individual after taxes have been paid, available for spending and saving

Disposable income = consumption + saving