Online Test — Determination of Income and Employment
15 Questions • 15 min • Chapter MCQ
15:00
Question 1 of 15
Total planned expenditure in the economy is:
Aggregate demand
Aggregate supply
National debt
The deficit
Explanation: Total planned spending is aggregate demand.
Question 2 of 15
Aggregate demand equals:
C + I + G + (X − M)
Rent + wages
Y − S
Real ÷ Nominal
Explanation: AD = C + I + G + (X − M).
Question 3 of 15
The largest component of aggregate demand is usually:
Consumption
Net exports
Government spending
Investment
Explanation: Consumption is normally the biggest part of AD.
Question 4 of 15
In C = a + bY, 'a' is:
Autonomous consumption
Income
Saving
The multiplier
Explanation: 'a' is autonomous consumption (at zero income).
Question 5 of 15
Where the consumption line crosses the 45° line is the:
Break-even point
Multiplier
Inflationary gap
Deficit
Explanation: At the break-even point, C = Y.
Question 6 of 15
The output level where AD = AS is called:
Effective demand
Disposable income
The deflator
Net exports
Explanation: Effective demand is where AD = AS.
Question 7 of 15
Income is divided between consumption and:
Saving
Tax
Imports
Profit
Explanation: Y = C + S — income is consumed or saved.
Question 8 of 15
MPC is the:
Fraction of extra income consumed
Total income
C ÷ Y
Tax rate
Explanation: MPC = ΔC ÷ ΔY (extra income consumed).
Question 9 of 15
APC + APS equals:
0
1
100
MPC
Explanation: Income is consumed or saved, so APC + APS = 1.
Question 10 of 15
The investment multiplier equals:
1 ÷ MPS
MPS × 100
1 − MPC
MPC ÷ MPS
Explanation: k = 1 ÷ (1 − MPC) = 1 ÷ MPS.
Question 11 of 15
If MPC = 0.75, the multiplier is:
4
1.33
0.25
7.5
Explanation: k = 1 ÷ 0.25 = 4.
Question 12 of 15
A higher MPC makes the multiplier:
Larger
Smaller
Zero
Negative
Explanation: More re-spending each round means a bigger multiplier.
Question 13 of 15
Equilibrium where output is below full employment is:
Underemployment equilibrium
Full employment
Inflationary gap
Surplus
Explanation: Output steady but below full employment is underemployment equilibrium.
Question 14 of 15
AD less than the full-employment level creates a:
Deflationary gap
Inflationary gap
Trade surplus
Budget surplus
Explanation: Too little AD is a deflationary (recessionary) gap.
Question 15 of 15
AD greater than the full-employment level creates a:
Deflationary gap
Inflationary gap
Recession
Surplus
Explanation: Excess AD pulls prices up — an inflationary gap.