ECS 1601

Study Unit 6 Quiz

Multiple-choice questions (MCQs)

1.

The consumption schedule shows that .

[1] the marginal propensity to consume increases as the GDP increases
[2] households increase their spending when their wealth increases
[3] an increase in income leads to equivalent increases in consumption expenditure
[4] an increase in income increases consumption by an amount smaller than the increase in income

2.

3.

Jabus monthly disposable income increases from R2 000 to R2 500. As a result, his monthly saving
increases from R300 to R450. This implies that his marginal propensity to consume is the following:
[1]

0,30

[2]

0,70

[3]

0,76

[4]

0,82

In the Keynesian model, if the interest rate is high, investment will be __________________, and if
income increases it will have ________________ on investment because investment is a type of
__________________spending.
[1]
[2]
[3]
[4]

4.

low; no effect; autonomous

high; a positive effect; induced
low; a negative effect; induced
high; no effect; autonomous

Paradox of thrift is .
[1] when individual consumers save more, this can increase their income, but if all consumers do this, the
income level in the economy rises
[2] when individual consumers save more, this can decrease their income, but if all consumers do this, the
income level in the economy falls
[3] when individual consumers save more, this can increase their income, but if all consumers do this, the
income level in the economy falls
[4 when individual consumers save more, this can decrease their income, but if all consumers do this,
the income level in the economy rises

Open Rubric

ECS 1601
Study Unit 6 Quiz

True or False
5.

If there is an unexpected build-up of inventories by businesses, this implies that aggregate production is
greater than aggregate spending.

6.

According to Says Law, an increase in aggregate production will automatically lead to an increase in
aggregate demand.

7.

If expenditure increases due to an increase in income, it is an example of autonomous spending.

Long questions
8.

Consider a country called Zeno in which there are only two sectors: households and businesses. There is
no government and no foreign sector. Consumers consume goods and services to the value of
R100 million even if their income is zero, and they consume 75% of each additional R1 that they receive
in income. Businesses spend R200 million on capital formation.
8.1 Based on this information, derive the consumption function for Zeno.
8.2 Calculate the level of consumption if income is equal to:
(i)
(ii)
(iii)
(iv)

zero
R100 million
R400 million
R800 million

8.3

Calculate the multiplier.

8.4

Calculate the equilibrium level of income in Zeno.

8.5 Graphically present the expenditure line, w here aggregate spending is on the vertical
axis and income (or production) is on the horizontal axis. Clearly indicate the
intersection on the vertical axis and the slope of the expenditure line. Also show where
equilibrium is on the expenditure line.
9.

Given the following information, answer the questions that follow:

C = 150 + 0,8Y
I = 250
9.1
9.2
9.3
9.4
9.5
9.6
9.7

What is the value of autonomous consumption in this economy?

What is the slope of the consumption function in this economy?
What is the value of the MPC in this economy?
What is the value of the MPS in this economy?
What is the value of total autonomous spending?
What is the equilibrium income level?
What will be the equilibrium income level if autonomous investment increases to R300?

ECS 1601
Study Unit 6 Quiz
10.

Use the following four figures and match a figure to an option below:
Figure A

Figure B

A=Y

A=Y

A1

A1

Figure C

Y
Figure D

A
A=Y

A=Y

A1

A1

0
Y

10.1

An increase in autonomous expenditure

10.2

A decrease in autonomous consumption

10.3

An increase in the marginal propensity to consume

10.4

An increase in the marginal propensity to save

10.5

A decrease in the marginal propensity to consume

10.6

A decrease in the marginal propensity to save

10.7

An increase in the size of the multiplier

10.8

A decrease in the interest rate

10.9

A redistribution of income in favour of low income households

10.10

An improvement in profit expectations and business sentiment