Tag: economics

Quizzes (361) Questions (3598)

Questions Related to economics

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

If the saving function is S =- 20 + 0.3Y, then what will be the value of MPC?

  1. 0.3

  2. 0.7

  3. -0.7

  4. 1
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Saving function is given in the form of: 
$S = -\bar{C}+sY$
where,

$-\bar{C} = autonomous\ consumption$,
$s = marginal\ propensity\ to\ save\ (MPS).$

Given, $MPS = 0.3$
It is a known fact that, $MPS + MPC = 1$ 
$MPC = 1 - MPS = 1 - 0.3 = 0.7$

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

A reduction in government spending leads to fall in the income and purchasing power of the people.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Reduction in government spending will reduce the level of aggregate demand, which will lead to fall in the income and purchasing power of the people. (The extent of fall in the income and purchasing power depends on the size of multiplier).

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Which of the following is not the reason for excess demand?

  1. Fall in the propensity to consume

  2. Reduction in taxes

  3. Increase in investments

  4. Deficit Financing
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Propensity to consume refers to the proportion of income used as consumption expenditure. The fall in the propensity to consume is not responsible for creating excess demand in an economy.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. 

If MPC = 0.6, then MPS = 0.4 but 
Multiplier (k) = 1/MPS = 1/0.4 = 2.5. 
So even if the value of MPC is greater than MPS then also multiplier is smaller than 5.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

There is an Inverse relationship between the value of marginal propensity to save and investment multiplier. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True.

 The value of multiplier and MPS are inversely related as multiplier is the reciprocal of MPS. 
Multiplier(k) = 1/ MPS. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

The maximum value of multiplier is when the value of MPC is _________.

  1. Infinity, zero

  2. Infinity, one

  3. One, infinity

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume. 

Therefore, the value of multiplier will be maximum when the value of MPC is either infinity or zero. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

 If MPC =1, the value of multiplier is ________.

  1. 0

  2. 1

  3. Between 0 and 1

  4. Infinity
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume.

If MPC = 1, then 

Multiplier(k)= 1/(1-1)= 1/0 = Infinity.

Therefore, the value of the multiplier is infinity. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

__________ refers to a situation when AD is equal to AS beyond the full employment level.

  1. Full Employment Equilibrium

  2. Over Full Employment Equilibrium

  3. Underemployment Equilibrium

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The over full employment equilibrium refers to the situation when the aggregate demand in the economy is equal to aggregate supply beyond the full employment level which means that the excess demand in the economy leads to high price and over utilization of resources. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

If MPC = MPS, then value of multiplier is __________.

  1. Infinity

  2. One

  3. Equal to MPC

  4. Two
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / change in investment = 1/ MPS(s) where s is the marginal propensity to save. 


So if MPS=MPC then ,

We know that MPC + MPS =1 

=> 2 MPS= 1 

=> MPS= 1/2 

=> MPS= 0.5  

Multiplier (K) = 1/ MPS= 2 times.

Hence, the value of the multiplier is two. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

If MPC = 0, the value of multiplier is __________.

  1. 0

  2. 1

  3. Between 0 and 1

  4. Infinity
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume.

If MPC = 0, then 

Multiplier(k)= 1/(1-0)= 1/1 = 1

Therefore, the value of the multiplier is 1.