EXAM - Keynes model of consumption

Question 1

In the Keynes model of consumption, there’s a link between:

Answer 1

Consumption and income

Question 2

What were Keynes’s conjectures?

Answer 2

• 0 < MPC < 1
• APC falls as income rises
• Income is the main determinant of consumption

Question 3

What happened to research on Keynes’ conjectures?

Answer 3

• Initially, research supported Keynes’ conjectures
• Conjectures did not come true
• As incomes grew, APC didn’t fall, and C grew just as fast

Question 4

Simon K showed that C/Y was:

Answer 4

Very stable in time series data

Question 5

How do you show an interest rate increase in a two-period economy?

Answer 5

Graph

Question 6

How do you draw Keynes’s conjectures on a graph?

Answer 6

Graph