5 Questions
What primarily determines consumption and saving?
Disposable Income
What type of relationship exists between disposable income and consumption?
Direct relationship (positive)
What can occur when disposable income is greater than consumption?
Saving
What primarily determines shifts of the investment demand curve?
Interest Rates
What concept describes the increase in national income resulting from an increase in investment spending?
The Multiplier Effect
Study Notes
Determinants of Consumption and Saving
- Consumption and saving are primarily determined by disposable income, interest rates, and consumer expectations
Relationship Between Disposable Income and Consumption
- There is a direct relationship between disposable income and consumption, as an increase in disposable income leads to an increase in consumption
Effects of Disposable Income on Consumption
- When disposable income is greater than consumption, savings occur, allowing for the accumulation of wealth and potential future investments
Shifts of the Investment Demand Curve
- The investment demand curve is primarily determined by the interest rate, business expectations, and technology, leading to shifts in the curve when these factors change
The Concept of the Multiplier
- The multiplier effect describes the increase in national income resulting from an increase in investment spending, as the initial investment stimulates additional rounds of spending and economic activity
Test your understanding of basic macroeconomic relationships with this quiz. Explore concepts such as income-consumption and income-saving relationships, nonincome determinants of consumption and saving, and the impact of interest rates on investment.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
