1, In working with the consumption function and the investment demand schedule, we need to distinguish between shifts of and movements along these schedules.

• Define carefully for both curves changes that would lead to shifts of and those that would produce movements along the schedules
• For the following, explain verbally and show in a diagram whether they are shifts of or movements along the consumption function: increase in disposable income, decrease in wealth, fall in stock prices.
• For the following, explain in words and show in a diagram whether they are shifts of or movements along the investment demand curve: expectation of a decline in output next year, rise of interest rates, increase in taxes on profits.

2, "Along the consumption function, income changes more than consumption." What does this imply for theMPCandMPS?

3, "Changes in disposable income lead to movements along the consumption function; changes in wealth or other factors lead to a shift of the consumption function." Explain this statement with an illustration of each case.

4, Explain in words and using the notion of expenditure rounds why the tax multiplier is smaller than the expenditure multiplier.

5, Give (a) the common sense, (b) the arithmetic, and (c) the geometry of the multiplier. What are the multipliers forMPC= 0.9? 0.8? 0.5?