#1
Which of the following is an example of consumption expenditure?
Purchasing a new car
ExplanationConsumption expenditure involves buying goods and services for personal use.
#2
What is the formula for the marginal propensity to consume (MPC)?
Change in consumption / Change in income
ExplanationMPC measures the change in consumer spending resulting from a change in income.
#3
According to the life-cycle hypothesis of consumption, how do individuals plan their consumption over the course of their lifetime?
Maintaining a consistent level of consumption throughout their life.
ExplanationThe life-cycle hypothesis posits that people aim for a stable consumption pattern over their lifetime.
#4
What is the formula for the average propensity to consume (APC) in economics?
Consumption / Income
ExplanationAPC measures the proportion of income that individuals devote to consumption rather than saving.
#5
What is the concept of 'disposable income' in the context of consumption and saving?
Income after taxes and other mandatory deductions, available for spending or saving.
ExplanationDisposable income is the money individuals have left after paying taxes and other compulsory expenses.
#6
In the context of economics, what does GDP stand for?
Gross Domestic Product
ExplanationGDP is the total value of all goods and services produced within a country's borders in a specific time period.
#7
According to the permanent income hypothesis, how do individuals determine their consumption levels?
Based on their permanent income
ExplanationThe permanent income hypothesis suggests that people base their consumption on their expected long-term income.
#8
In the context of the Keynesian consumption function, what does 'autonomous consumption' refer to?
Consumption that is independent of income
ExplanationAutonomous consumption is spending that occurs regardless of changes in income.
#9
What is the paradox of thrift in economics?
The idea that saving more can lead to a decrease in aggregate demand and overall economic output.
ExplanationIf everyone saves more and spends less, it can reduce overall demand and economic activity.
#10
What is the formula for the marginal propensity to save (MPS)?
Change in saving / Change in income
ExplanationMPS measures the proportion of additional income that individuals save rather than spend.
#11
In the context of the permanent income hypothesis, how do individuals determine their consumption levels?
Based on their expected future income
ExplanationUnder the permanent income hypothesis, consumption decisions are influenced by anticipated future income.
#12
Which of the following is an example of a regressive tax?
Sales tax
ExplanationRegressive taxes take a higher proportion of income from low-income earners, like sales tax.
#13
What is the key difference between saving and investment in economics?
Saving is the act of putting money aside, while investment is using money to generate income or profit.
ExplanationSaving is storing money, while investment is putting money to work to create additional value.
#14
What is the concept of time preference in the context of saving and consumption?
The preference for immediate consumption over delayed consumption.
ExplanationTime preference reflects the inclination to consume today rather than waiting for future consumption.
#15
In macroeconomics, what does the term 'liquidity trap' refer to?
A scenario where monetary policy becomes ineffective because interest rates are very low, and people hoard money instead of spending.
ExplanationLiquidity trap occurs when low-interest rates fail to stimulate spending, as people prefer holding cash.
#16
What is the Ricardian Equivalence proposition in economics?
The idea that government debt has no effect on aggregate demand because individuals adjust their saving to offset changes in government spending.
ExplanationRicardian Equivalence suggests that individuals anticipate future taxes and adjust their behavior accordingly.
#17
In economic terms, what is the role of expectations in influencing consumption and saving behavior?
Expectations can influence how individuals allocate their income between consumption and saving.
ExplanationIndividuals' expectations about the future can impact their decisions regarding spending and saving.