Exhibit 8-2 Consumption function
As shown in Exhibit 8-2, saving occurs:
A. at 0 disposable income.
B. between $0 and $4 trillion disposable income.
C. at $4 trillion disposable income.
D. at a disposable income greater than $4 trillion.
Answer: D
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If the price of lattes, a normal good you enjoy, falls, then
A) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more lattes purchased. B) the income and substitution effects offset each other but the price effect leads you to buy more lattes. C) both the income and substitution effects lead you to buy more lattes. D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more lattes purchased.
Two variables are said to be negatively correlated if their values
A. tend to move in opposite directions. B. tend to move in the same direction. C. are always negative. D. only decrease but never increase.