#1
What does the term 'MPC' stand for in economics?
Marginal Propensity to Consume
ExplanationMPC represents the proportion of additional income that individuals consume rather than save.
#2
What is the formula for calculating the simple expenditure multiplier?
1 / (1 - MPC)
ExplanationInverse of the marginal propensity to consume (MPC) is used to calculate the simple expenditure multiplier.
#3
Which of the following factors affects the value of the consumption multiplier?
All of the above
ExplanationVarious factors, including government spending, taxes, and net exports, collectively impact the value of the consumption multiplier.
#4
What does the 'consumption function' represent in macroeconomics?
The relationship between consumption and disposable income
ExplanationIt illustrates how changes in disposable income impact consumption levels in the economy.
#5
What happens to the consumption function when disposable income increases?
Shifts upward
ExplanationA rise in disposable income causes an upward shift in the consumption function, indicating increased consumption.
#6
In the context of the expenditure multiplier, what does 'autonomous spending' refer to?
Spending that does not depend on income
ExplanationAutonomous spending refers to expenditures not influenced by changes in income.
#7
What effect does an increase in taxes have on the consumption multiplier?
Decreases the consumption multiplier
ExplanationHigher taxes reduce disposable income, leading to a lower consumption multiplier.
#8
What is the relationship between the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)?
MPC + MPS = 1
ExplanationThe sum of the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) equals 1 in the economy.
#9
What effect does an increase in investment have on the GDP multiplier?
Increases the GDP multiplier
ExplanationGreater investment leads to a higher GDP multiplier, magnifying the impact of economic changes.
#10
What is the significance of the consumption multiplier in Keynesian economics?
It measures the impact of consumption changes on GDP
ExplanationIt quantifies how changes in consumer spending influence overall economic output in the Keynesian model.
#11
What is the relationship between the consumption multiplier and the marginal propensity to consume (MPC)?
They are directly proportional
ExplanationAn increase in the Marginal Propensity to Consume (MPC) corresponds to a proportional rise in the consumption multiplier.