The consumption function shows the relationship between
A Consumption and saving
B Consumption and income
C Saving and income
D Investment and income
Consumption function explains how consumption changes with changes in income.
Keynes assumed that consumption depends primarily on
A Interest rate
B Price level
C Income level
D Population
According to Keynes, income is the main determinant of consumption.
Autonomous consumption refers to consumption that
A Depends on income
B Depends on prices
C Is independent of income
D Depends on interest rate
Autonomous consumption occurs even when income is zero.
The consumption function can be expressed as
A C = a + bY
B C = Y – S
C C = I + S
D C = Y + I
Here ‘a’ is autonomous consumption and ‘b’ is marginal propensity to consume.
Marginal Propensity to Consume (MPC) is defined as
A ΔC / ΔY
B C / Y
C ΔY / ΔC
D S / Y
MPC measures the change in consumption due to change in income.
Average Propensity to Consume (APC) is
A ΔC / ΔY
B C / Y
C ΔY / ΔC
D S / Y
APC shows the proportion of income spent on consumption.
MPC is always
A Greater than 1
B Equal to 1
C Less than 1 but greater than zero
D Equal to zero
A part of income is always saved, so MPC < 1.
If MPC is 0.8, the value of multiplier will be
A 2
B 4
C 5
D 10
Multiplier = 1 / (1 – MPC) = 1 / 0.2 = 5.
Which of the following represents saving function?
A S = Y – C
B S = a + bY
C S = C – Y
D S = I – Y
Saving is the part of income not consumed.
At zero income, consumption equals
A Zero
B Savings
C Autonomous consumption
D Induced consumption
Even with zero income, basic consumption continues.
APC is greater than one at
A High income levels
B Zero income
C Full employment
D Equilibrium income
At very low or zero income, consumption exceeds income.
As income increases, APC generally
A Increases
B Remains constant
C Decreases
D Becomes zero
Consumption rises less proportionately than income.
The slope of consumption function represents
A APC
B MPC
C Saving
D Investment
Slope indicates change in consumption per unit change in income.
Which factor does NOT affect consumption function?
A Income
B Wealth
C Expectations
D Technology
Technology affects production, not directly consumption behavior.
Psychological law of consumption states that
A Consumption increases more than income
B Consumption increases less than income
C Consumption remains constant
D Consumption equals income
Keynes stated that consumption rises but not as much as income.
The investment function shows relationship between
A Investment and saving
B Investment and income
C Investment and interest rate
D Investment and consumption
Investment inversely depends on interest rate.
Autonomous investment is determined by
A Income level
B Rate of interest only
C Expectations and technology
D Consumption level
Expectations and technological progress drive autonomous investment.
Induced investment depends on
A Population growth
B Government policy
C Changes in income
D Interest rate only
Induced investment responds to changes in income.
Marginal Efficiency of Capital (MEC) refers to
A Cost of capital
B Expected rate of return
C Interest rate
D Profit margin
MEC is expected yield from an additional unit of capital.
Investment will increase if
A MEC < interest rate
B MEC = interest rate
C MEC > interest rate
D Interest rate rises
Firms invest when expected return exceeds borrowing cost.
Which of the following is most volatile component of aggregate demand?
A Consumption
B Investment
C Government spending
D Saving
Investment fluctuates due to expectations and confidence.
The multiplier shows the relationship between
A Investment and saving
B Income and saving
C Income and investment
D Consumption and income
Multiplier measures change in income due to change in investment.
The value of multiplier depends on
A APC
B MPC
C APS
D Interest rate
Higher MPC leads to larger multiplier effect.
Multiplier is defined as
A 1 / MPC
B 1 / APS
C 1 / (1 – MPC)
D MPC / APS
Standard Keynesian multiplier formula.
If MPC = 0.6, multiplier equals
A 1.5
B 2
C 2.5
D 4
Multiplier = 1 / (1 – 0.6) = 2.5.
The multiplier effect occurs because of
A Repeated rounds of consumption
B Government intervention
C Wage flexibility
D Price stability
Income generated is re-spent multiple times.
The multiplier works effectively when
A MPC is low
B MPC is high
C APS is zero
D Savings are zero
Higher MPC means more re-spending of income.
Which condition weakens the multiplier effect?
A High MPC
B Low leakage
C High savings
D Stable consumption
Leakages like saving reduce multiplier impact.
The multiplier process ends when
A Investment stops
B Saving equals investment
C MPC becomes zero
D Income becomes zero
Equilibrium is reached when leakages equal injections.
Which of the following is a leakage in income flow?
A Investment
B Government spending
C Saving
D Exports
Saving withdraws income from circular flow.
Which of the following is an injection?
A Saving
B Tax
C Investment
D Hoarding
Investment adds income into the economy.
Multiplier effect is strongest in an economy with
A High saving habit
B High MPC
C High taxes
D Low consumption
More consumption means larger income expansion.
Which factor limits the size of multiplier?
A Price rigidity
B Leakages
C Government spending
D Investment demand
Leakages like saving, taxes, and imports reduce multiplier.
In a closed economy without government, leakages consist of
A Saving only
B Saving and taxes
C Saving and imports
D Saving, taxes, imports
Only saving is leakage in two-sector model.
The concept of multiplier was developed by
A Keynes
B Marshall
C Kahn
D Pigou
R.F. Kahn introduced multiplier concept.
Keynes later popularized multiplier in relation to
A Saving
B Consumption
C Investment
D Government expenditure
Keynes linked multiplier to investment changes.
The multiplier process assumes
A Excess capacity
B Flexible prices
C Full employment
D Neutral money
Idle resources are required for output expansion.
If MPC = 1, multiplier will be
A Zero
B One
C Infinite
D Negative
All income is spent, causing unlimited expansion theoretically.
If MPC = 0, multiplier will be
A Zero
B One
C Infinite
D Negative
No induced consumption; income rises only by initial investment.
Which of the following reduces multiplier effectiveness?
A High MPC
B Taxation
C Government spending
D Investment
Taxes reduce disposable income and spending.
Multiplier effect explains
A Inflation
B Income propagation
C Price determination
D Wage rigidity
It shows how initial spending multiplies income.
The consumption curve intersects Y-axis at
A MPC
B APC
C Autonomous consumption
D Saving
At zero income, consumption equals autonomous consumption.
Which of the following increases multiplier value?
A Higher saving
B Lower MPC
C Higher MPC
D Higher taxes
More spending leads to higher income expansion.
Investment is called autonomous when it is influenced by
A Income
B Interest rate only
C Profit expectations and innovation
D Consumption
Autonomous investment depends on expectations and technology.
Induced consumption depends on
A Population
B Interest rate
C Income
D Government policy
Induced consumption varies with income changes.
Which schedule shows relation between income and saving?
A Consumption schedule
B Saving schedule
C Investment schedule
D Demand schedule
Saving schedule depicts saving-income relationship.
Saving function is the inverse of
A Investment function
B Consumption function
C Multiplier
D Accelerator
Saving is income minus consumption.
When APC equals 1, saving is
A Zero
B Maximum
C Negative
D Infinite
All income is consumed, leaving no saving.
Which situation reflects dissaving?
A C < Y
B C = Y
C C > Y
D S = 0
Dissaving occurs when consumption exceeds income.
Keynesian analysis of consumption assumes
A Rational expectations
B Constant income
C Short-run perspective
D Perfect foresight
Keynes focused on short-run consumption behavior. ;