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Define the consumption function and explain how it determines total consumption. What is the relationship between the consumption function and the multiplier?

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019
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Why is there a "two-way" link between consumption and GDP? ❢ How does an increase in disposable income affect the consumption function? An increase in expected future income? ❢ If the consumption function shifts upward, what happens to the saving function? Why? ❢ When is actual aggregate expenditure different from planned aggregate expenditure? Why happens to being the two back to equality? ❢ Explain why income taxes reduce the size of the expenditure multiplier. ❢ When the equilibrium real GDP is below potential GDP, how does the unemployment rate compare with the natural rate? What is the results of this state of affairs that restores the long-run equilibrium? ❢ What is a recessionary gap? How does the economy adjust to eliminate a recessionary gap?

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