Income Determination Test

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Income Determination Test - 26

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Weekly Quiz Competition

Question 1
1 / -0

The level of equilibrium income is determined by:

A
AD and AS

B
AD and Investment

C
AD and Consumption

D
AD and national income

Solution

According to the Keynesian theory, the equilibrium level of income in an economy is determined at the intersection point of AD and AS curves.
Question 2
1 / -0

Multiplier tells us what will be the:

A
Final change in the income, as a result of change in consumption

B
Final change in the consumption, as a result of change in investment

C
Final change in the income, as a result of change in investment

D
Change in investment results in the change in income

Solution

Multiplier implies change in income as a result of change in investment,

\(K =\frac{\Delta Y }{\Delta I } \quad \text { or } \quad K \times \Delta I =\Delta Y\)

Where \(K\) is multiplier,

\(K =\frac{1}{1- MPC } \quad \text { or } \quad K =\frac{1}{ MPS }\)
Question 3
1 / -0

If income is Rs 1000 and consumption expenditure is Rs 1200, APS will be:

A
-0.5

B
0.4

C
-0.2

D
0.3

Solution

APC=C/Y=1200/1000=1.2

Now, APS=1-APC

APS=1-1.2=-0.2
Question 4
1 / -0

The formula of investment multiplier in terms of MPC is:

A
K=1/(1-APC)

B
K=1/(1-MPS)

C
K=1/(1-MPC)

D
K=1/(1-APS)

Solution

\(K=\frac{1}{1-M P C}\) Where 1-MPC= MPS
Question 5
1 / -0

If the initial increase in the investment is Rs 1000 and MPC=0.8, the multiplier will be:

A
4

B
3

C
5.0

D
6

Solution

K=1/1-mpc

= 1/1-0.8

=1/0.2

=5
Question 6
1 / -0

The important factor influencing the propensity to consume in an economy is:

A
The level of income (Y)

B
The level of savings

C
The level of consumption

D
The level of investment

Solution

It is always the level of income (Y) that impacts an economy's propensity to consume (C).

C=f(Y) and APC=C/Y =f(Y)/Y
Question 7
1 / -0

In C = a + b (Y), ‘C’ denotes:

A
Consumption expenditure

B
Central expenditure

C
Collateral expenditure

D
Capital expenditure

Solution

In the equation C = a + b(Y), 'C' denotes consumption expenditure. This equation represents the consumption function, where 'a' represents autonomous consumption (the portion of consumption that is independent of income), 'b' represents the marginal propensity to consume (the proportion of additional income that is consumed), and 'Y' represents disposable income.
Question 8
1 / -0

The equation of saving function is:

A
S = - a + (1 - b)

B
S = f (Y)

C
S = - a + (1 - b) Y

D
C = - a + by.

Solution

The equation of the saving function (S) relates saving to disposable income (Y). In the given equation, 'a' represents autonomous saving (saving that occurs regardless of income), and 'b' represents the marginal propensity to save (the proportion of additional income that is saved). The term (1 - b)Y represents the portion of disposable income not consumed, which constitutes saving. Therefore, the equation S = -a + (1 - b)Y accurately represents the saving function.
Question 9
1 / -0

Keynes theory is associated with:

A
Effective demand

B
Propensity to consume

C
Propensity to save

D
All of these

Solution

Keynes' theory is associated with all of the options provided: effective demand, propensity to consume, and propensity to save. Effective demand refers to the total demand for goods and services in an economy, which Keynes emphasized as crucial for determining the level of economic activity. Additionally, Keynes introduced the concepts of propensity to consume (the inclination of individuals to spend a portion of their income) and propensity to save (the inclination to save a portion of income), which are fundamental to his theory of income determination and fluctuations in aggregate demand.
Question 10
1 / -0

MPC+MPS =

A
2

B
1

C
4

D
3

Solution

\(M P C+M P S=1\)
Note that, \(\Delta C+\Delta S=\Delta Y D\)

Divide this equation by \(\triangle Y D\) to obtain,

\(\frac{\Delta C}{\Delta Y D}+\frac{\Delta S}{\Delta Y D}=\frac{\Delta Y D}{\Delta Y D}\) or MPC + MPS \(=1\)

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Re-Attempt Weekly Quiz Competition

Income Determination Test - 26

Result

Income Determination Test - 26

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SHARING IS CARING

Question 1

AD and AS

AD and Investment

AD and Consumption

AD and national income

Solution

Question 2

Final change in the income, as a result of change in consumption

Final change in the consumption, as a result of change in investment

Final change in the income, as a result of change in investment

Change in investment results in the change in income

Solution

Question 3

-0.5

0.4

-0.2

0.3

Solution

Question 4

K=1/(1-APC)

K=1/(1-MPS)

K=1/(1-MPC)

K=1/(1-APS)

Solution

Question 5

4

3

5.0

6

Solution

Question 6

The level of income (Y)

The level of savings

The level of consumption

The level of investment

Solution

Question 7

Consumption expenditure

Central expenditure

Collateral expenditure

Capital expenditure

Solution

Question 8

S = - a + (1 - b)

S = f (Y)

S = - a + (1 - b) Y

C = - a + by.

Solution

Question 9

Effective demand

Propensity to consume

Propensity to save

All of these

Solution

Question 10

2

1

4

3

Solution

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