Understanding Consumption and the Consumption Function

The video tutorial explores aggregate demand, focusing on consumption as a key component. It defines consumption as household spending on goods and services, driven by disposable income. The tutorial distinguishes between durable and non-durable goods and explains the concepts of average and marginal propensity to consume. It introduces the consumption function, illustrating the relationship between consumption and disposable income, highlighting autonomous and discretionary consumption.

What is the primary focus of the video in relation to aggregate demand?

• Government Spending

• Investment

• Net Exports

• Consumption

What is disposable income?

• Total income before taxes

• Income after taxes and deductions

• Income from investments

• Income from government benefits

Which of the following is an example of a durable good?

• Newspaper

• Smartphone

• Food

• Drink

What is the average propensity to consume?

• The total income invested

• The total income saved

• The change in consumption due to a change in income

• The proportion of total income spent on goods and services

How is the marginal propensity to consume calculated?

• Change in consumption divided by change in income

• Total consumption divided by total income

• Change in savings divided by change in income

• Total savings divided by total income

What does the consumption function graphically represent?

• The relationship between investment and interest rates

• The relationship between exports and imports

• The relationship between consumption and disposable income

• The relationship between government spending and GDP

Why does the consumption function not start at the origin?

• Because of autonomous consumption

• Due to government intervention

• Because of inflation

• Due to changes in interest rates

What is autonomous consumption?

• Consumption that is saved for future use

• Consumption that occurs even without income

• Consumption that is taxed

• Consumption that depends on income

What is discretionary consumption?

• Consumption that is saved

• Consumption that is taxed

• Consumption that depends on income levels

• Consumption that is necessary for survival

What does the slope of the consumption function represent?

• Average propensity to consume

• Marginal propensity to consume

• Total income

• Total savings