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Question Bank - Economics

National Income: Consumption

Q1. The effect of an increase in proportional taxes on the consumption function is to

(Select one answer)

(a) * increase the MPC out of national income
(b) * increase the MPS out of national income
(c) * decrease the MPC out of national income
(d) * leave the MPC unchanged out of national income

Source: McGraw Hill logo

Q2. If the MPC for the economy is 0.8, the

(Select one answer)

(a) * the multiplier is 1.25
(b) * the multiplier is 5
(c) * the multiplier is undefined
(d) * the MPS is 0.4

Source: McGraw Hill logo

Q3. The permanent income theory

(Select one answer)

(a) * explains consumption behaviour relative to long-term expectations of inflation
(b) * is the same as the consumption function
(c) * predicts only small changes in the level of current consumption when income changes temporarily
(d) * all of the above

Source: McGraw Hill logo

Q4. In the equation C equals a + bY, which describes the aggregate consumption function, 'b' stands for

(Select one answer)

(a) * the amount of consumption when income is zero.
(b) * the amount of income when consumption is zero.
(c) * the marginal propensity to consume.
(d) * the average consumption level.

Source: Pearson logo

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