Unite 3 consumptions, saving and investment

Question 1

AUTONOMOUS CONSUMPTION:

Answer 1

Food / every day clothes
TOTAL CONSUMPTION = AUTONOMOUS + INDUCED

Question 2

INDUCED CONSUMPTIONC

Answer 2

Cars clothes

Question 3

Induced consumption depends on a variable called the

Answer 3

Marginal Propensity to Consume (mpc)

Question 4

The mpc is the

Answer 4

fraction of each extra dirham of personal disposable income that households wish to consume.
MPC = (𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒄𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏)/(𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒊𝒏𝒄𝒐𝒎𝒆)

Question 5

PRIVATE SAVINGS

Answer 5

This represents the part of disposable income that consumers put aside and decide not to spend at the present time.
Private Savings = Disposable Income Less consumption

S private = Yd - C

Question 6

PUBLIC SAVINGS

Answer 6

This represents that part of government revenue that the government deicdes not to spend that year

Public Savings = Tax Revenue Less Government Spending
Spublic = T - G

NATIONAL SAVINGS = Household savings + Public Savings

Question 7

IN A SIMPLE CLOSED ECONOMY
INCOME IS EITHER

Answer 7

CONSUMED OR SAVED
:. AN EXTRA DIRHAM EARNT IS EITHER THIS MEANS THAT :
MPC + MPS = 1

OR MPS = 1-MPC

MPS measures the extra saving our of every extra dirham that is earnt CONSUMED OR SAVED

Question 8

Banks convert

Answer 8

Deposits into loans

Question 9

Markets enable

Answer 9

sale of new bonds (a loan instrument) or new stock

Question 10

Individual and household

Answer 10

borrow for investment spending (residential property)
Firms borrow for capital investment (capital formation, the purchase or machines and equipment)

Question 11

When firms increase investment

Answer 11

—>jobs are created —->unemployment is reduced —-»>people will have income to spend&raquo_space;>consumer spending will increase&raquo_space;GDP will increase because Y = C + I + G
An increase in saving increases investment which, in turn increases GDP

Question 12

The main source of government revenue is

Answer 12

Taxation

Question 13

The main source of government expenditure is

Answer 13

GOVERNMENT SPENDING (G)

Question 14

Government BUDGET or simply

Answer 14

the BUDGET

Question 15

The three broad reasons for saving relate to:

Answer 15

The life cycle, precaution and bequests

Question 16

Saving for protection against unexpected setbacks is called

Answer 16

Bequest saving

Question 17

An increase in the real interest rate increases causes savings to:

Answer 17

Increase

Question 18

The consumption function is the relationship between consumption and :

Answer 18

Disposable income

Question 19

. The marginal propensity to consume is the :
Amount by which disposable income increases when consumption increases by 1 dhs

Answer 19

Amount by which consumption increases when disposable income increases by 1dhs

Question 20

The proportion of planned expenditure that is independent of output is called _______expenditure:

Answer 20

Potential