1) If disposable income is kd 350 million and the average propensity to consume is 0.80, personal saving is kd 70 million.
2) The average propensity to save is equal to the level of saving divided by the level of consumption.
3) The slope of the consumption schedule is equal to the marginal propensity to consume.
4) If households become wealthier, the consumption schedule will shift upward.
5) The wealth effect will tend to decrease consumption and increase saving.
6) The slope of the saving schedule is equal to the marginal propensity to save.
1) An increase in disposable income :
A) increases consumption because it shifts the consumption schedule upward .
B) decreases consumption because it shifts the consumption schedule downward .
C) increases consumption by moving upward along a specific consumption schedule .
D) decreases consumption by moving downward along a specific consumption schedule.
A
B
C
0 1
D
E
2
G
F
H
3

2
2) Refer to the above graph. At income level 3, the amount of saving is represented by the line segment:
A) FG.
B) FH.
C) FD.
D) GH.
3) Refer to the above graph. At income level 3, the amount of consumption is represented by the line segment:
A) FG.
B) FH.
C) FD.
D) GH.
4) Refer to the above graph. At income level 1, the amount of dissaving is represented by the line segment:
A) AB.
B) AC.
C) AD.
D) BC.
5) Refer to the above graph. At income level 1, the amount of consumption is represented by the line segment:
A) AB.
B) AC.
C) AD.
D) BC.
6) Refer to the above graph. The break-even level of income would be at income level:
A)
B)
C)
D)
0
1
2
3
7) Refer to the above graph. As income rises from level 1 to level 2, the amount of:
A) consumption increases and the amount of dissaving decreases.
B) consumption increases and the amount of dissaving increases.
C) consumption increases and the amount of saving decreases.
D) consumption decreases and the amount of saving increases.
8) Refer to the above graph. As income rises from level 2 to level 3, the amount of:
A) consumption increases and the amount of saving decreases.
B) consumption increases and the amount of saving increases.
C) consumption decreases and the amount of saving increases.
D) consumption increases and the amount of dissaving increases.

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9) The slope of the consumption schedule between two points on the schedule is :
A) the ratio of the change in consumption to the change in disposable income between those two points .
B) the ratio of the change in disposable income over the change in consumption between those two points .
C) equivalent to one plus the marginal propensity to save .
D) equivalent to the average propensity to consume.
10) The fraction, or percentage, of total income which is consumed is called the :
A) break-even income .
B) consumption schedule .
C) marginal propensity to consume .
D) average propensity to consume.
11) As income goes up the :
A) APS tends to fall .
B) APC tends to fall .
C) volume of saving declines absolutely .
D) volume of consumption declines absolutely.
12) If disposable income decreases, the average propensity to consume will :
A) increase and then decrease .
B) remain constant .
C) increase .
D) decrease.
13) If there is a decrease in disposable income in an economy, then:
A) both the APC and the APS rise.
B) the APC rises and the APS falls.
C) the APC falls and the APS rises.
D) both the APC and the APS fall.
14) If disposable income is kd 900 million when the average propensity to consume is 0.9, it can be concluded that:
A) the marginal propensity to consume is also 0.9.
B) the marginal propensity to save is 0.1.
C) consumption is kd 900 million.
D) saving is kd 90 million.
15) The MPC can be defined as the :
A) change in consumption divided by the change in income .
B) change in income divided by the change in consumption .
C) ratio of income to saving .
D) ratio of saving to consumption.

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16) If a family's MPC is 0.7, it is :
A) operating at the break-even point .
B) spending seven-tenths of any increment to its income .
C) necessarily dissaving .
D) spending 70 percent of its income on consumer goods.
17) If you know that an increase in a household's disposable income from kd 35,000 to kd
45,000 leads to an increase in consumption from kd 30,000 to kd 38,000, then you can conclude that the :
A) slope of the consumption schedule is 0.75
B) average propensity to consume is 0.8
C) marginal propensity to save is 0.25
D) marginal propensity to consume is 0.8
18) If the consumption schedule is a straight line, it can be concluded that the :
A) APC is necessarily constant .
B) MPC is measured by the ratio C/DI .
C) MPC is constant at various levels of income .
D) APC increases as income rises.
19) The relationship between the MPS and the MPC is such that :
A) MPC - MPS = 1 .
B) MPS/MPC = 1 .
C) 1 - MPC = MPS .
D) MPS x MPC = 1.
20) The saving schedule shows the relationship of saving of households to the level of :
A) consumption .
B) investment .
C) disposable income .
D) the average propensity to save.
21) When does dissaving occur in a household ?
A) when the change in consumption is greater than the change in income
B) when disposable income is greater than consumer indebtedness
C) when consumption is greater than disposable income
D) when saving is greater than disposable income
22) Refer to the graph. Saving would be represented by the line segment:
S
A) AB.
D
B) CD.
C) AE.
D) DE.
0
A
1
C
2
E
3
B
S
D
I

5
23) Refer to the above graph. Dis-saving would be represented by the line segment:
A) AB.
B) CD.
C) AE.
D) DE.
24) Refer to the above graph. The break-even level of income would be represented by point:
A) A.
B) B.
C) C.
D) D.
25) Refer to the above graph. As income rises from level 2 to level 3, the amount of:
A) dissaving decreases.
B) dissaving increases.
C) saving decreases.
D) saving increases.
26) Refer to the above graph. As income falls from level 2 to level 1, the amount of:
A) dissaving decreases.
B) dissaving increases.
C) saving decreases.
D) saving increases.
27) In a saving schedule, the change in saving is always kd 2 million and the change in income is always kd 10 million across each saving and income level. It can be concluded that the :
A) slope of the saving schedule is 2
B) slope of the consumption schedule is 0.8
C) marginal propensity to consume is 0.2
D) marginal propensity to save is 5
28) In a private closed economy, national income is kd 4.5 billion and savings equals kd 6.4 million. Based on this data, the marginal propensity to consume :
A) decreases as income increases .
B) is greater than the marginal propensity to save .
C) is less than the average propensity to consume .
D) cannot be calculated from the data given.
29) Which would shift the consumption schedule upward ?
A)
B)
C) a decrease in wealth an increase in wealth consumer expectations of falling prices
D) consumer expectations of product surpluses

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30) The wealth effect will result in households:
A) spending more and saving less.
B) spending less and saving more.
C) spending less and saving less.
D) spending more and saving more.
31) When consumers decide to increase household debt, this action will:
A) shift the consumption schedule upward.
B) shift the consumption schedule downward.
C) increase the amount consumed along a stable consumption schedule.
D) decrease the amount consumed along a stable consumption schedule.
32) If consumers experience a decrease in wealth, then this will shift:
A) upward both the consumption and saving schedules.
B) downward both the consumption and saving schedules.
C) the consumption schedule upward and the saving schedule downward.
D) the consumption schedule downward and the saving schedule upward.
33) If consumers expect prices to rise and shortages to occur in the future, then it will shift:
A) upward both the consumption and saving schedules.
B) downward both the consumption and saving schedules.
C) the consumption schedule upward and the saving schedule downward.
D) the consumption schedule downward and the saving schedule upward.
34) An increase in taxes will shift:
A) upward both the consumption and saving schedules.
B) downward both the consumption and saving schedules.
C) the consumption schedule upward and the saving schedule downward.
D) the saving schedule upward and the consumption schedule downward.
( 1 ) Complete the following table assuming that: (a) MPS = 1/5, (b) there is no government and all saving is personal saving.
Level of output and income kd 250
275
300
325
350
375
400
Consumption kd 260
____
____
____
____
____
____
Saving kd ___
___
___
___
___
___
___

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( 2 ) Complete the accompanying table.
(GDP = DI) Consumption Saving APC APS MPC MPS
kd 480
520
560 kd ___
___
___ kd –8
0
8
____
____
____
____
____
____
___
___
___
___
___
___
600
640
680
720
760
___
___
___
___
___
800 ___
16
24
32
40
48
____ ____ ___ ___
____ ____ ___ ___
____
____
____
____
____
____
___
___
___
___
___
___
56 ____ ____ ___ ___
(a) Using the data above, show the consumption and saving schedules graphically.
(b) Locate the break-even level of income. How is it possible for households to dissave at very low income levels?
(c) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain how the MPC and MPS can be constant at various levels of income.
( 3 ) Suppose a family’s annual disposable income is kd 8,000 of which it saves kd
2,000.
(a) What is their APC?
(b) If their income rises to kd 10,000 and they plan to save kd 2,800, what are their MPS and MPC?
(c) Did the family’s APC rise or fall with their increase in income?

List four factors which could shift the consumption schedule.

Explain the difference between a movement along the consumption schedule and a shift in the consumption schedule.

Differentiate between the average propensity to consume and the marginal propensity to consume.