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Chapter 5: Problem 4

The minimum amount that people will spend even if disposable income is zero is called consumption. (LO5) a) autonomous b) induced c) total

Short Answer

Expert verified
The correct answer is a) autonomous consumption, as it refers to the minimum amount people will spend even if their disposable income is zero.

Step by step solution

01

Define Autonomous Consumption

Autonomous consumption is the portion of consumption that is independent of disposable income. It accounts for the minimum level of consumption even when disposable income is zero (i.e., people would still consume regardless of their income). This concept is usually represented in the consumption function as a constant term.
02

Define Induced Consumption

Induced consumption is the portion of consumption that is dependent on disposable income. It changes with the level of income, representing people's tendency to consume more as their income increases. The induced consumption is usually represented in the consumption function as a parameter multiplied by the disposable income.
03

Define Total Consumption

Total consumption refers to the overall consumption that is made up of both autonomous and induced consumption. It represents the sum of both components, giving us the overall level of consumption in the economy.
04

Identify the Appropriate Term

Now that we have defined the three options, we can see that the term that fits the definition provided in the exercise (the minimum amount that people will spend even if disposable income is zero) is the autonomous consumption. So, the correct answer is: a) autonomous

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Most popular questions from this chapter

The largest component of GDP is (LO3) a) net exports c) consumption b) investment d) government purchases

The consumption function tells us that, as income rises, consumption \((\mathrm{LO3})\) a) declines b) remains the same c) rises more slowly than income d) rises more quickly than income

Which one of the following statements is the most accurate? (LO6,8) a) The American consumer was largely responsible for Japan's economic resurgence since World War II. b) China, as the world's most populous country, has the world's largest consumer market. c) Although there are some who call the American consumer a world-class shopper, most Americans save substantial parts of their incomes. d) Since we import most of our goods, the American economy has only a small impact on the world's other large economies.

When income is equal to consumption, saving is (LO3, 4) a) negative b) zero c) positive d) impossible to calculate because there is insufficient information

The largest component of \(C\) is \((\mathrm{LO3})\) a) durable goods b) services c) nondurable goods
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