ECS1601/101/3/2020
Economics 1B: ECS 1601
Assignment Number: 03& 04
Semester 2 2020
1
, SEMESTER 2 ASSIGNMENTS 3 & 4
Assignment 03
Assignment 03
Unique number 835743
Closing date 18 September 2020
Learning units 6, 7 and 8 of the Study Guide and the relevant
Content chapters of the prescribed book
Questions 20 questions
Weight 30% of the semester mark
To submit Through myUnisa or on a mark-reading sheet
3.1 Which of the following statements is correct?
[1] At any point below the 45-degree line, aggregate spending is greater than production and
income.
[2] At any point below the 45-degree line, aggregate spending is less than production but greater
than income.
[3] At any point below the 45-degree line, aggregate spending is greater than income but smaller
than production.
[4] At any point below the 45-degree line, aggregate spending is less than production and income.
The 45-degree line shows the equality between the variable measured on the vertical axis and the variable
measured on the horizontal axis.
Left of equilibrium spending is more than production. There is excess demand
2
, ECS1601/101/3/2020
3.2 Which of the following statements is incorrect?
[1] Induced consumption does not require income.
[2] People always consume even if income is zero.
[3] Consumption increases by less than the increase in income.
[4] There is no relationship between consumption and interest rates.
The Consumption Function
▪ Consumption increases as income increases.
▪ Consumption is positive even if income is zero (there are non-income determinants – people will spend
savings or use credit if their income is 0. This is the autonomous consumption).
▪ When income increases, consumption increases but the increase in consumption is less than the increase
in income – part of the additional income is saved
▪ There are two parts of consumption spending: an autonomous part which is independent of income, and
an induced part which is determined by income
3.3 Which of the following is likely to shift the consumption schedule upwards?
[1] A currently large stock of durable goods in the possession of
consumers.
[2] Consumer prices are expected to rise.
[3] Expectations of a fall in interest rates.
[4] The expectation of a future rise in the consumer price index.
▪ Expectations of a fall in interest rates
▪ Consumer prices are expected to fall
▪ Currently less stock of durable goods in the possession of consumers
▪ The expectation of a future rise in the consumer price index.
3.4 Which of the following statements is correct about the marginal propensity to consume (MPC)?
[1] MPC – marginal propensity to save = 1
[2] MPC is equal to or greater than one at all income levels.
[3] MPC is greater than zero but less than one.
[4] MPC may be negative.
Household options: Save or Spend money e.g. if household has income of R1 then:
▪ Amount they spend will be their marginal propensity to consume (MPC)
▪ Amount saved will be marginal propensity to save (MPS)
▪ Thus: MPC + MPS = 1
But both MPC i.e. Marginal Propensity to Consume and MPS i.e. Marginal Propensity to Save cannot be more
than one or less than zero as it is percentage change in consumption or saving when there is some change in
the level of income which cannot be more than the change in income.
3
Economics 1B: ECS 1601
Assignment Number: 03& 04
Semester 2 2020
1
, SEMESTER 2 ASSIGNMENTS 3 & 4
Assignment 03
Assignment 03
Unique number 835743
Closing date 18 September 2020
Learning units 6, 7 and 8 of the Study Guide and the relevant
Content chapters of the prescribed book
Questions 20 questions
Weight 30% of the semester mark
To submit Through myUnisa or on a mark-reading sheet
3.1 Which of the following statements is correct?
[1] At any point below the 45-degree line, aggregate spending is greater than production and
income.
[2] At any point below the 45-degree line, aggregate spending is less than production but greater
than income.
[3] At any point below the 45-degree line, aggregate spending is greater than income but smaller
than production.
[4] At any point below the 45-degree line, aggregate spending is less than production and income.
The 45-degree line shows the equality between the variable measured on the vertical axis and the variable
measured on the horizontal axis.
Left of equilibrium spending is more than production. There is excess demand
2
, ECS1601/101/3/2020
3.2 Which of the following statements is incorrect?
[1] Induced consumption does not require income.
[2] People always consume even if income is zero.
[3] Consumption increases by less than the increase in income.
[4] There is no relationship between consumption and interest rates.
The Consumption Function
▪ Consumption increases as income increases.
▪ Consumption is positive even if income is zero (there are non-income determinants – people will spend
savings or use credit if their income is 0. This is the autonomous consumption).
▪ When income increases, consumption increases but the increase in consumption is less than the increase
in income – part of the additional income is saved
▪ There are two parts of consumption spending: an autonomous part which is independent of income, and
an induced part which is determined by income
3.3 Which of the following is likely to shift the consumption schedule upwards?
[1] A currently large stock of durable goods in the possession of
consumers.
[2] Consumer prices are expected to rise.
[3] Expectations of a fall in interest rates.
[4] The expectation of a future rise in the consumer price index.
▪ Expectations of a fall in interest rates
▪ Consumer prices are expected to fall
▪ Currently less stock of durable goods in the possession of consumers
▪ The expectation of a future rise in the consumer price index.
3.4 Which of the following statements is correct about the marginal propensity to consume (MPC)?
[1] MPC – marginal propensity to save = 1
[2] MPC is equal to or greater than one at all income levels.
[3] MPC is greater than zero but less than one.
[4] MPC may be negative.
Household options: Save or Spend money e.g. if household has income of R1 then:
▪ Amount they spend will be their marginal propensity to consume (MPC)
▪ Amount saved will be marginal propensity to save (MPS)
▪ Thus: MPC + MPS = 1
But both MPC i.e. Marginal Propensity to Consume and MPS i.e. Marginal Propensity to Save cannot be more
than one or less than zero as it is percentage change in consumption or saving when there is some change in
the level of income which cannot be more than the change in income.
3
