Unit 3 ECO

In a simple economy, planned investment refers to:

• The actual level of investment that occurs in an economy

  
  

• Government expenditure on public projects

  
  

• The total spending by firms on capital goods and inventories

  
  

• The level of investment firms intends to undertake

  
  

If income increases, Keynesian theory suggests that total consumption will:

• Increase by the same amount as income

  
  

• Decrease

• Increase, but by less than the increase in income

  
  

• Remain constant

  
  

According to Keynes, the most important determinant of consumption is:

• Government spending

  
  

• Interest rates

  
  

• Expectations about future inflation

  
  

• Disposable income

  
  

If the marginal propensity to consume (MPC) is 0.6, what is the marginal propensity to save (MPS)?

• 0.4

  
  

• 5/3

• 0.6

• 2.5

In the Keynesian model, planned investment is determined mainly by:

• The money supply

  
  

• Government spending

  
  

• The current account balance

  
  

• Interest rates and business expectations

  
  

If businesses sell more than they expected, their actual investment will be:

• Equal to planned investment

  
  

• Unaffected

• Less than planned investment

  
  

• More than planned investment

  
  

Autonomous consumption refers to consumption that:

• Depends on interest rates

  
  

• Does not depend on income

  
  

• Depends only on income

  
  

• Depends on investment

  
  

If consumption exceeds income in a given period, it means that:

• People are borrowing or using past savings

  
  

• Investment is decreasing

  
  

• The MPC is greater than 1

  
  

• There is a budget surplus

  
  

The average propensity to consume (APC) is defined as:

• C/Y

  
  

• C+S

  
  

• ΔC/ΔY

  
  

• Y/C

  
  

Actual investment differs from planned investment when:

• There are unexpected changes in inventories

  
  

• There is no change in inventories

  
  

• Government spending decreases

  
  

• Businesses accurately forecast future demand