Consumption Function: AP Macroeconomics Online Test

With a rise in Income, Consumption:
Rises in the same proportion
Rises more than the increase in Income
Rises less than the increase in Income
Cannot be determined
Who propounded the Relative Income Theory of Consumption?
Gardner Ackley
Who propounded the Permanent Income Hypothesis?
Gardner Ackely
Who propounded the Life Cycle Theory of Consumption?
Joan Robinson
The Ratchet Effect implies that: I. Individuals imitate the consumption level of their neighbours or families II. Average Propensity to consume remains constant III. With a fall in the income of individuals, the Consumption Expenditure does not fall as much
I only
II only
III only
I and III
II and III
The Theory of Consumption propounded by Milton Friedman:
Is based upon the long term Expected Income
States that the Consumption Expenditure decreases when the rate of interest rises
Takes into consideration the household’s preference to add to the stock of Wealth of Assets as against immediate consumption
Takes into consideration Transitory Income
All of the above
The Life Cycle Theory of Consumption assumes: I. The individual knows at what age he will die. II. The net savings in the entire life time is zero. III. The individual earns maximum income when he is about to die.
I only
II only
III only
I and II
I, II and III
The Life Cycle Hypothesis brings out the difference between:
Current Income and Current Investment
Current Income and Current Savings
Current Income and Cyclical Investment
Cyclical and Long Run Consumption Function
Cyclical and Long Run Investment Function
The Marginal Propensity to Consume is the ratio of:
Amount of Consumption to Total Income
Amount of Consumption to Total Investment
Amount of Consumption to the change in Income
Change in Consumption to the change in Income
Change in Consumption to change in Total Income
According to the Duesenberry’s Theory of Consumption, expenditure depends upon: I. Absolute Income of the individual II. Relative Income of the individual III. Life Cycle Income
I only
II only
III only
I and II
II and III

The Aggregate Demand consists of two components: Consumption and Investment. The Consumption Function includes some interesting concepts related to Propensity to Consume, Propensity to Save, Theories of Consumption and Determinants. Here is a quick revision of the Concepts relating to Consumption. While taking this test, go through all the options very carefully. Try out this 7-minute short Multiple Choice questions test and assess your knowledge relating to this important constituent of Aggregate Demand.

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