Unit 2
1. At the time of deflationary gap
a. there is deficient demand
b.aggregate demand lacks potential output
c. Aggregate demand more than potential output
d.both a and b
2. Deflationary gap also known as
a. recessionary gap
b.contractionary gap
C.expansionary gap
d. Both a and b
3. Which of the following are leakages ?
a. saving
b.taxes
c.imports
d.all of the above
4. Which of the following are injections?
a. investment
b.government expenses
c.exports
d. All of the above
5. MPC=MPS then the value of multiplier is
a. infinity
b.one
c.zero
d.two
6.AD curve is represented by __ curve in the income determination analysis.
a) Consumption + Saving + Investment
b) Consumption + Saving
c) Saving + Investment
d) Consumption + Investment
7.Multiplier is __ related to MPC.
a) Directly
b) Positively
c) Indirectly
d) both a and b
8.When economy decides to save the whole of its additional income, then value of
investment multiplier will be:
a) 1
b) Indeterminate
c) 0
d) Infinity
9.The algebraic relationship between multiplier and MPC is:
a) Multiplier (K) = 1 + MPC
b) Mulitplier (K) = 1 – MPC
c) Multiplier (k) = 1/1 – MPC
d) Multiplier (k) = 1/MPC
10.If saving function of an economy is given as: S = -40 + 0.4 (Y), then MPC is:
a) 1
b) 0.4
c) 0.6
d) None of these
11.If the entire additional income of an economy is consumed, the value of
investment multiplier
will be _ .
a) 0
b) 1
c) Between 0 and 1
d) Infinity
12.MPC = 0.75 and as a result of multiplier effect, national income increased by ₹300
crores by an additional invsetment of __ .
a) ₹75 crores
b) ₹225 crores
c) ₹1,200 crores
d) ₹200 crores
13.When Planned Saving is less than Planned Investment, then:
a) National Income is likely to fall
b) There will be no change in National Income
c) National Income is likely to rise
d) None of these
14.Find autonomous consumption expenditure,if at equilibrium, national income is
₹1,500 crores;investment expenditure ₹300 crores; Marginal Propensity to Consumer
is 0.7.
a) ₹140 crore
b) ₹150 crore
c) ₹100 crore
d) ₹120 crore
15.During recession, Keynesian economics recommend which of the following
policies to stimulate economic growth and increase national income?
a) decreasing government spending and raising taxes
b) decreasing money supply to control inflation
c) increase government spending and lowering taxes
d) reducing exports
16.Which of the following represents the primary tool for the government to influence
aggregate demand and stabilize according to Keynesian economics?
a) monetary policy
b) fiscal policy
c) supply side policy
d) exchange rate policy
17.In the circular flow model, which sector supplies factors of production to business
firms?
a)government
b)households
c) business firms
d) foreign sectors
18The consumption function is given by C=800 + 0.6 Y. What is saving when
disposable income(Y) is ₹2000
a) ₹800
b) ₹1200
c) ₹400
d)zero
19.If MPS= 0.2 then value of multiplier is
a)2
b)3
c)4
d)5
20.The investment multiplier is 3, an initial increase in investment of ₹100 million will
lead to a total increase in national income of
a) ₹200 million
b) ₹300 million
c) ₹400 million
d)₹500 million
21.In three sector model, total consumption is 800 million, total investment is 200
million, government spending 300 million and net export 50 million. The equilibrium
would be
a) ₹1200 million
b) ₹1300 million
c) ₹1400 million
d)₹1500 million
22.The equilibrium condition in four sector economy is represented as:
a)AD= C+ G +S = AS
b)AD=C + I + G + Nx = AS
c) AD= C+ I + G + T = AS
d AD= C + I + Nx = AS
23.
Income consumption
0 80
100 100
200 120
300 140
400 160
On the basis of above table which equation is correct?
A. C= 20+0.8 Y
B. C=80+0.2y
C. C=50+ 0.75Y
D. None of the above
24. The marginal propensity to consume (MPC) can be defined as
a) a change in spending due to a change in income
b) a change in income that is saved after consumption
c) part of income that is spent on consumption.
d) part of income that is not saved.
25. If the consumption function is expressed as C = a + bY then b
represents
a) autonomous consumer expenditure when income is zero
b) the marginal propensity to consume.
c) the expenditure multiplier when consumption is increased
d) part of disposable income
