True Or False: Trivia Questions On Savings And Investment! Quiz

Explanation
The statement "Consumption equals disposable income plus savings" is false. Consumption refers to the amount of money spent on goods and services, while disposable income is the income that remains after taxes and other deductions. Savings, on the other hand, is the portion of income that is not spent. Therefore, consumption is not equal to disposable income plus savings, but rather equal to disposable income minus savings.

Explanation
Disposable income refers to the amount of money that consumers have available to spend after taxes and other necessary expenses have been deducted. It is a key factor in determining the level of consumer spending because when people have more disposable income, they are more likely to spend on goods and services. Conversely, when disposable income is low, people tend to cut back on their spending. Therefore, the statement that the most significant determinant of the level of consumer spending is disposable income is true.

Explanation
The statement suggests that there is a positive relationship between consumption expenditures and disposable income based on historical data. This implies that as disposable income increases, people tend to spend more on consumption. This relationship is logical as individuals with higher income have more money available to spend on goods and services, leading to an increase in consumption expenditures. Therefore, the answer is true.

Explanation
When disposable income increases, it is likely that both consumption and savings will also increase. This is because individuals have more money available to spend on goods and services (consumption) and also have the opportunity to save a portion of their increased income. Therefore, the statement that consumption rises and savings falls when disposable income increases is incorrect.

Explanation
The given statement is false. Empirical data actually suggest that households tend to spend a larger proportion of a small disposable income than of a larger disposable income. This is because when households have a smaller disposable income, they have less money to allocate towards savings or non-essential expenses, resulting in a higher proportion of their income being spent on necessary items. Conversely, when households have a larger disposable income, they have more flexibility to allocate funds towards savings or non-essential expenses, leading to a lower proportion of their income being spent.

Explanation
The break-even income is not the income level at which business begins to make a profit. Instead, it is the income level at which the total costs of a business are equal to its total revenue, resulting in neither a profit nor a loss. Only after surpassing the break-even point can a business start making a profit. Therefore, the correct answer is false.

Explanation
The average propensity to save is actually equal to the level of saving divided by the level of income, not consumption. Consumption is a part of income, but it is not the only factor that determines saving. Therefore, the statement is false.

Explanation
When an individual's wealth increases, they have more disposable income available to spend on goods and services. This leads to an increase in their consumption, causing the consumption schedule to shift upward. As a result, the relationship between wealth and consumption is positive, indicating that an increase in wealth will indeed increase the consumption schedule.

Explanation
An increase in taxes paid by consumers means they have less disposable income. With less money available for spending, consumers will naturally decrease their consumption. Additionally, since they have less money to save, the amount they save will also decrease. Therefore, both the amount spent on consumption and the amount saved will decrease when taxes paid by consumers increase.

Explanation
The statement suggests that both the consumption schedule and the saving schedule remain consistent and predictable over a period of time. This implies that individuals tend to spend and save their money in a consistent manner, without significant fluctuations. This stability can be attributed to factors such as income stability, budgeting habits, and long-term financial goals. Therefore, the answer "True" is correct as it aligns with the notion that consumption and saving patterns tend to remain stable over time.

Explanation
The explanation for the given correct answer is that the real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. This is because inflation erodes the purchasing power of money over time, so the real interest rate takes into account the impact of inflation on the return on an investment. By subtracting the rate of inflation from the nominal interest rate, we get the real interest rate, which reflects the true increase in purchasing power of the investment. Therefore, the statement that the real interest rate is the nominal interest rate minus the rate of inflation is true.

Explanation
A business will not purchase additional capital goods if the real interest rate it must pay exceeds the expected rate of return from the investment. This is because it would be more costly to borrow money to finance the investment than the potential returns it would generate. Therefore, the statement is false.

Explanation
The statement is false because the relationship between the rate of interest and the level of investment spending is actually called the investment demand curve or the investment function. The investment schedule refers to a table or graph that shows the different levels of investment spending at various interest rates.

Explanation
The statement suggests that the irregularity of innovations and the variability of business profits have an impact on the instability of investment spending. This means that when innovations are unpredictable and business profits fluctuate, it can lead to uncertainty and instability in investment spending. Therefore, the statement is true.

Explanation
The statement is true because saving refers to the portion of income that is not spent on consumption and is instead kept for future use. Actual investment, on the other hand, refers to the expenditure on the purchase of new capital goods or the expansion of existing ones. In an equilibrium condition, saving and investment are equal because any saving that is not used for consumption is invested in capital goods. Therefore, saving and actual investment are always equal.

Explanation
At any level of real GDP, saving is equal to planned investment plus unplanned changes in inventories. This means that whatever amount is saved by individuals, businesses, or the government, it will be equal to the total amount of investment planned by businesses and any changes in inventories that were not initially planned. This equation holds true regardless of the level of real GDP, indicating that saving is directly related to investment and changes in inventories.