Question 1

Value of MPC is
A)>1
B)<1
C)0
D)0? mpc ?1

Accepted Answer

The Marginal Propensity to Consume (MPC) is the proportion of additional income that is spent on consumption. It ranges between 0 and 1.

Question 2

Schedule that expressesrelationship between rate of interest and corresponding amount of investment
A)mei
B)mec
C)effective demand
D)aggregate demand

Accepted Answer

The Marginal Efficiency of Investment (MEI) schedule expresses the relationship between the rate of interest and the corresponding amount of investment. It shows how much investment is expected to be undertaken at different interest rates, based on the anticipated returns from those investments.

Question 3

Net investment is
A)value of gross minus subsidies
B)investment after providing for depreciation
C)value of gross output before providing forsubsidies
D)none of the above

Accepted Answer

Net investment is calculated by subtracting depreciation from the gross investment. This accounts for the wear and tear on assets over time, providing a more accurate measure of actual investment in productive capacity.

Question 4

MEC is directly related to
A)prospective yield
B)supply price
C)rate of interest
D)all of the above

Accepted Answer

The answer of MEC is directly related to
A)prospective yield
B)supply price
C)rate...

Question 5

According to Keynes the most important determinant ofconsumption
A)rate of interest
B)saving
C)income
D)investment

Accepted Answer

According to Keynes, the most important determinant of consumption is income. He proposed this in his theory of consumption, often referred to as the Keynesian consumption function, which suggests that as people's income increases, their consumption also increases, but at a slower rate than the increase in income.

Question 6

In the Keynesian two sector economy, AD<AS, then
A)s=i
B)s>i
C)s<i
D)s=0

Accepted Answer

When AD<AS in a Keynesian two-sector economy, it implies that not all output is being sold, leading to unplanned inventory accumulation. This is equivalent to saying that savings (S) are greater than investment (I), as the excess goods produced are effectively saved rather than invested or consumed.

Question 7

In the equation C = 60 + 0.6 Y, MPCis
A)60
B)0.6
C)0
D)1

Accepted Answer

MPC, or Marginal Propensity to Consume, is the change in consumption resulting from a change in income. In the equation C = 60 + 0.6Y, the coefficient of Y (0.6) represents the MPC, indicating that for every additional unit of income, consumption increases by 0.6 units.

Question 8

According to Keynes the most important determinant ofinvestment
A)mec
B)effective demand
C)aggregate demand
D)rate of interest

Accepted Answer

The most important determinant of investment according to Keynes is the marginal efficiency of capital (MEC), which refers to the expected rate of return on an additional unit of capital.

Question 9

When disposable income risesfrom Rs 500 to Rs 600 and consumption expenditure changes from Rs 470 to Rs 560, MPC will be equal to
A)900
B)100
C)0.9
D)1

Accepted Answer

The Marginal Propensity to Consume (MPC) is calculated as the change in consumption expenditure divided by the change in disposable income. Here, the change in consumption expenditure is Rs 560 - Rs 470 = Rs 90, and the change in disposable income is Rs 600 - Rs 500 = Rs 100. Therefore, MPC = 90/100 = 0.9.

Question 10

In a two sector economy, aggregate demand is equalto
A)c+i
B)c+s
C)s+i
D)all of the above

Accepted Answer

The answer of In a two sector economy, aggregate demand...

Question 11

In Keynesian terminology, investment means:
A)financial investment
B)real investment
C)induced investment
D)none of the above

Accepted Answer

In Keynesian economics, investment refers to real investment, meaning the purchase of capital goods and services, and not merely financial transactions.

Question 12

Rate of change in savings to change in income:
A)aps
B)apc
C)mps
D)mpc

Accepted Answer

The rate of change in savings to change in income is referred to as the marginal propensity to save (mps).

Question 13

Keynesian economics is also known as:
A)supply side economics
B)monetary economics
C)rational expectations
D)depression economics

Accepted Answer

Keynesian economics is often associated with the study and policies aimed at addressing periods of economic downturns and depressions, hence it is also referred to as "depression economics." It focuses on using government spending and fiscal policy to manage economic cycles.

Question 14

Which of the following can cause shifts in consumption function:
A)psychological attitude
B)social practices
C)business motives
D)changes in price level

Accepted Answer

The answer of Which of the following can cause shifts...

Question 15

APC is determined by the following equation:
A)c/y
B)s/y
C)?c/?y
D)?s/?y

Accepted Answer

The answer of APC is determined by the following equation:
A)c/y
B)s/y
C)?c/?y
D)?s/?y...

Question 16

In the Keynesian two sector model, when AD = AS, then:
A)s<i
B)s>i
C)s=i
D)i=0

Accepted Answer

In the Keynesian two-sector model, when Aggregate Demand (AD) equals Aggregate Supply (AS), it implies that the economy is in equilibrium. In this state, savings (s) equal investment (i), hence s=i. This equilibrium condition is fundamental to Keynesian economics, reflecting a balance between what is saved and what is invested in the economy.

Question 17

Which of the following is not correct:
A)mpc declines as income increases
B)mpc is positive but less than one
C)mps is always positive
D)all the above

Accepted Answer

The marginal propensity to save (MPS) can be zero or even negative if individuals dissave, meaning they spend more than their income.

Question 18

According to Keynes, saving is:
A)private virtue but not social virtue
B)private and social virtue
C)is neither private virtue nor social virtue
D)is either social virtue or private virtue

Accepted Answer

Keynes argued that while saving might be considered a virtue for an individual, it does not necessarily translate to a virtue for the economy as a whole. This is because excessive saving can lead to reduced consumption, which in turn can lead to lower production, employment, and overall economic activity.

Question 19

MEC isinversely related to:
A)prospective yield
B)supply price
C)investment
D)rate of interest

Accepted Answer

The answer of MEC isinversely related to:
A)prospective yield
B)supply price
C)investment
D)rate of...

Question 20

Keynes considered subjective and objective factors:
A)important determinants of consumption
B)unimportant determinants of consumption
C)determinants of investment
D)determinants of business's willingness to pay

Accepted Answer

The answer of Keynes considered subjective and objective factors:
A)important determinants...

Quiz 4: Keynesian Economics and Related Concepts

Value of MPC is

Schedule that expressesrelationship between rate of interest and corresponding amount of investment

Net investment is

MEC is directly related to

According to Keynes the most important determinant ofconsumption

In the Keynesian two sector economy, AD

In the equation C = 60 + 0.6 Y, MPCis

According to Keynes the most important determinant ofinvestment

When disposable income risesfrom Rs 500 to Rs 600 and consumption expenditure changes from Rs 470 to Rs 560, MPC will be equal to

In a two sector economy, aggregate demand is equalto

In Keynesian terminology, investment means:

Rate of change in savings to change in income:

Keynesian economics is also known as:

Which of the following can cause shifts in consumption function:

APC is determined by the following equation:

In the Keynesian two sector model, when AD = AS, then:

Which of the following is not correct:

According to Keynes, saving is:

MEC isinversely related to:

Keynes considered subjective and objective factors: