Multiple Choice Questions o B) All income is consumed

1. What does the term ex-ante represent? o C) All income is saved

o A) Planned values o D) No income is saved
o B) Actual values 6. If autonomous consumption (C) in a country is 50 and MPC is 0.6,
what will the consumption be if income is 500?
o C) Observed values
o A) 350
o D) Retrospective values
o B) 200
2. Which of the following is independent of income in the consumption
function? o C) 300
o A) Marginal propensity to consume o D) 400
o B) Induced consumption 7. The investment multiplier depends on:
o C) Autonomous consumption o A) Interest rate
o D) Average propensity to save o B) Rate of autonomous expenditure
3. The consumption function in a basic form can be represented as: o C) Value of MPC
o A) C = MPC + Y o D) Price level
o B) C = C + cY 8. What is the Paradox of Thrift?
o C) C = Y – S o A) Increased saving leads to more overall savings
o D) C = Y + S o B) Increased saving does not increase overall savings
4. Marginal Propensity to Consume (MPC) ranges between: o C) Increased saving reduces consumption demand
o A) -1 and 1 o D) Both B and C
o B) 0 and 1 9. Full employment level of income is the level where:
o C) 1 and 2 o A) All resources are efficiently utilized
o D) 0 and 100 o B) Some resources are underutilized
5. When MPC = 0, it implies: o C) Resources are used inefficiently
o A) No income is consumed o D) None of the above
 10. Aggregate Demand (AD) in a two-sector model is calculated by: • B) An increase in AD
o A) C + S • C) No change in AD
o B) C + I • D) A decrease in autonomous consumption
o C) S + I Which of the following would cause a rightward shift in the aggregate
demand curve?
o D) C + Y
• A) Increase in autonomous consumption
In a two-sector model, the Aggregate Demand (AD) function can be
represented as: • B) Increase in autonomous savings
• A) AD = C + S • C) Decrease in MPC
• B) AD = C + I • D) Decrease in autonomous investment
• C) AD = I - S The Aggregate Demand curve is parallel to which of the following
functions?
• D) AD = S + I
• A) Consumption function
The slope of the consumption function represents:
• B) Investment function
• A) Average Propensity to Consume
• C) Savings function
• B) Marginal Propensity to Save
• D) Aggregate Supply function
• C) Marginal Propensity to Consume
If MPC = 0.8, the multiplier will be:
• D) Total consumption
• A) 5
Which of the following statements best describes 'Autonomous
Investment'? • B) 4
• A) Investment that changes with income • C) 3
• B) Investment that depends on interest rates • D) 2
• C) Investment that is constant, regardless of income A decrease in the level of planned investment in an economy would result
in:
• D) Investment based on total consumption
• A) Decrease in aggregate demand
In the context of aggregate demand, an increase in the marginal propensity
to consume (MPC) will lead to: • B) Increase in aggregate supply
• A) A decrease in AD • C) Increase in aggregate demand
 • D) No change in aggregate demand • A) AD = S
Which of the following illustrates the relationship between consumption • B) AD = I
and income?
• C) AD = GDP
• A) Investment Function
• D) AD = AS
• B) Consumption Function
What happens to aggregate demand if there is an increase in autonomous
• C) Savings Function consumption?
• D) Demand Function • A) It decreases
If the marginal propensity to save (MPS) is 0.2, what is the marginal • B) It increases
propensity to consume (MPC)?
• C) It remains unchanged
• A) 0.2
• D) It depends on the level of income
• B) 0.8
Which of the following best describes the ‘Paradox of Thrift’?
• C) 0.5
• A) More savings lead to economic growth
• D) 0.4
• B) More savings may reduce total savings
When income is equal to autonomous consumption, what happens to
• C) Less savings lead to a higher consumption rate
savings?
• D) More savings cause higher prices
• A) It is zero
If consumption function is represented by C=50+0.7YC = 50 +
• B) It is negative
0.7YC=50+0.7Y, and Y increases by 100, by how much does consumption
• C) It is positive increase?
• D) It remains constant • A) 50
If the MPC is 0.6 and there is an increase of 100 in autonomous investment, • B) 70
what will be the total increase in income?
• C) 120
• A) 150
• D) 80
• B) 250
The Multiplier Effect can be explained as:
• C) 100
• A) The impact of increased aggregate supply
• D) 200
• B) The proportional increase in income from increased autonomous
In a two-sector model, equilibrium is achieved when: spending
 • C) The decrease in income from higher savings 1. What would the Aggregate Demand be if the income level is 500?
• D) The marginal decrease in aggregate demand o A) 400
A high Marginal Propensity to Save (MPS) implies: o B) 450
• A) A low marginal propensity to consume o C) 500
• B) A high level of consumption o D) 550
• C) No effect on income levels 2. If income increases by 100, what will be the additional consumption
due to the increase?
• D) An increase in aggregate demand
o A) 100
The value of the multiplier is given by the formula:
o B) 70
• A) 1MPC\frac{1}{MPC}MPC1
o C) 80
• B) 1MPS\frac{1}{MPS}MPS1
o D) 50
• C) 11−MPC\frac{1}{1 - MPC}1−MPC1
Case Study 2:
• D) 1+MPS1 + MPS1+MPS
In the country of Econland, due to a sudden rise in the interest rate,
In the short run, an increase in government spending would likely cause:
investment decreased by 10 units. The initial equilibrium income was 200,
• A) A decrease in aggregate demand with MPC at 0.6.

• B) An increase in aggregate demand 3. What is the new equilibrium income after the investment decrease?

• C) A shift in aggregate supply o A) 150

• D) A decrease in investment o B) 160

o C) 170
o D) 180
4. By how much does the Aggregate Demand change with the decrease in
investment?
Case Study Questions in MCQ Format
o A) 5
Case Study 1:
o B) 10
The economy of Imaginary Land has an autonomous consumption of 100 and
a marginal propensity to consume (MPC) of 0.7. Investment remains constant o C) 20
at 50.
o D) 15
Case Study 3: o A) 50
The government in Macroville introduces a tax cut, increasing disposable o B) 200
income. If the marginal propensity to save (MPS) is 0.2, and the tax cut adds
o C) 150
100 to income:
o D) 100
5. How much will consumption increase by?
Case Study 5:
o A) 60
In an economy with a GDP of 1,000, there is a sudden shift in consumer behavior,
o B) 70
leading to a decrease in the marginal propensity to consume from 0.8 to 0.5.
o C) 80 Assume initial autonomous consumption is 200.
o D) 90 9. What is the effect on aggregate demand due to the change in MPC?
6. What is the expected multiplier effect on the national income? o A) Increase by 300
o A) 2 o B) Decrease by 300
o B) 4 o C) Decrease by 500
o C) 5 o D) Increase by 500
o D) 6 10. What would the new equilibrium GDP be with the reduced MPC?
Case Study 4: • A) 500
In Macrocity, the government has decided to increase investment in infrastructure. • B) 700
The current income level is 600, MPC is 0.75, and initial autonomous investment
• C) 600
is 100.
• D) 800
7. What will be the new equilibrium level of income if investment
increases by 50?
o A) 700
o B) 800
o C) 900
o D) 1000
8. What is the total change in aggregate demand due to the increased
investment?