Page 213 - Krugmans Economics for AP Text Book_Neat

c. level of actual investment spending. b. planned investment spending − unplanned inventory
d. interest rate. investment.
e. all of the above. c. planned investment spending + inventory decreases.
5. Actual investment spending in any period is equal to d. unplanned inventory investment + inventory increases.
a. planned investment spending + unplanned inventory e. unplanned inventory investment − inventory increases.
investment.

Tackle the Test: Free-Response Questions Section 4 National Income and Price Determination
1. Use the consumption function provided to answer the
Answer (7 points)
following questions.
1 point: 0.8
c = $15,000 + 0.8 × y d
a. What is the value of the marginal propensity to consume? 1 point: $47,000
b. If individual household current disposable income is
1 point: Vertical axis labeled “Consumer spending” and horizontal axis labeled
$40,000, individual household consumer spending will “Current disposable income”
equal how much?
1 point: Vertical intercept of $15,000
c. Draw a correctly labeled graph showing this consumption
function. 1 point: Upward sloping consumption function
d. What is the slope of this consumption function?
1 point: 0.8
e. On your graph from part c, show what would happen if
expected future income decreased. 1 point: Consumption function shifts downward
Consumer
spending cf 1

cf 2

$15,000

0 Current disposable income

2. List the three most important factors affecting planned
investment spending. Explain how each is related to actual
investment spending.

module 16 Income and Expenditure 171