CA Foundation : Economics : Chapter 6 - Unit 2 : Quiz 1

Ch-6 Determination of National Income 

Unit 2: Keynesian Theory of Determination of National Income

What is the primary focus of Keynesian economics?

a) Long-term growth

b) Short-term equilibrium

c) Trade balances

d) Interest rates

Which concept relates consumption directly to disposable income?

a) Aggregate Demand

b) Saving Function

c) Consumption Function

d) Investment Multiplier

The multiplier effect primarily demonstrates the impact of changes in:

a) Government spending

b) Investment

c) Taxation

d) Interest rates

In a two-sector economy, Aggregate Demand (AD) is equal to:

a) C + S

b) C + I

c) I + S

d) Y - C

What is the formula for Marginal Propensity to Consume (MPC)?

a) ΔY/ΔC 

b) ΔC/ΔY

c) Y/C 

d) C/Y 

The saving function is defined as:

a) S = C + I

b) S = Y - C

c) S = I + G

d) S = C + G

The circular flow model in a two-sector economy involves:

a) Households and Government

b) Households and Firms

c) Firms and Government

d) Households and Foreign Sector

What does the 45-degree line represent in the Keynesian model?

a) Points where aggregate demand equals aggregate supply

b) Points where savings equals investment

c) Points where government spending equals taxes

d) Points where imports equal exports

A deflationary gap occurs when:

a) Aggregate Demand is greater than full employment level of output

b) Aggregate Demand is less than full employment level of output

c) Investment exceeds savings

d) Savings exceed investment

What happens during an inflationary gap?

a) Output decreases

b) Prices decrease

c) Prices increase without a corresponding increase in output

d) Both output and prices decrease

The formula for the investment multiplier is:

a) 1/1−MPC

b) 1/MPS

c) MPC/1−MPC 

d) 1/MPC

In the three-sector model, aggregate demand is represented as:

a) C + I

b) C + I + G

c) C + S + T

d) C + G + (X - M)

Which of the following is NOT considered a leakage in the multiplier process?

a) Savings

b) Taxes

c) Imports

d) Government spending

An example of an injection in the economy is:

a) Savings

b) Taxes

c) Imports

d) Investment

If the Marginal Propensity to Save (MPS) is 0.2, what is the multiplier?

a) 2

b) 4

c) 5

d) 8

When the economy is below the equilibrium level of income:

a) Aggregate demand exceeds output

b) Aggregate demand is less than output

c) Aggregate supply exceeds output

d) Aggregate supply is less than output

Keynesian fiscal policy suggests increasing government spending to:

a) Increase aggregate supply

b) Increase aggregate demand

c) Decrease aggregate supply

d) Decrease aggregate demand

The equilibrium level of national income in a three-sector model is determined when:

a) C + I + G = Y

b) C + S = Y

c) I = S

d) G = T

Which of the following would decrease the multiplier effect?

a) Increase in MPC

b) Increase in taxes

c) Increase in government spending

d) Decrease in imports

In Keynesian theory, what role does the government play in stabilizing the economy?

a) Minimal role

b) Active role in adjusting fiscal and monetary policies

c) Only as a regulator

d) Passive observer