Free Income Determination 03 Practice Test - 12th Grade - Commerce
Question 1
If MPS is 0.6, what will be ΔS when income increases by Rs 100?
Rs 60
Rs 50
Rs 40
Rs 70
SOLUTION
Solution : A
MPS = ΔSΔY
ΔS = MPS * ΔY
= 0.6 * 100
= Rs. 60
Question 2
On account of an injection of aggregate demand, the equilibrium level of income
Increases
Decreases
Remains constant
None of these
SOLUTION
Solution : A
On account of an injection of aggregate demand, the equilibrium level of income increases.
Question 3
When C = 300 + 0.8Y and Y = 1,000, saving at zero income level will be
300
-300
1,100
800
SOLUTION
Solution : B
C + S = Y
At zero income level,
C = -S
When Y = 0, C = 300 + 0.8(0) = 300
Therefore, S = -300
Question 4
If MPC increases, the value of multiplier will
Increase
Decrease
Remains constant
Increase as much as the increase in MPC
SOLUTION
Solution : A
If MPC increases, the value of multiplier will increase.
Question 5
If MPC = MPS, the value of multiplier will be:
0
1
2
∞
SOLUTION
Solution : C
If MPC = MPS, then, MPC = MPS = 0.5.
Multiplier = 11−0.5
= 2
Question 6
If income increases from 3,000 to 4,000, and autonomous investment increases by 200, the MPC should be
0.9
0.8
0.7
0.6
SOLUTION
Solution : B
Multiplier (M) = ΔYΔA
= (4000−3000)200
= 5
MPS = 1M = 0.2
Therefore, MPC = 1 - MPS = 0.8
Question 7
Find out the value of the multiplier, if MPC is zero.
0
1
Infinity
Cannot be determined
SOLUTION
Solution : B
Multiplier = 11−MPC
= 1.
Question 8
Saving can never be negative.
True
False
SOLUTION
Solution : B
False. Saving can be negative when consumption is greater than income. Negative saving amounts to borrowing.
Question 9
Find MPC when investment multiplier = 1.
1.2
1
0
1.5
SOLUTION
Solution : C
M(multiplier) =11−MPC
Given that, 11−MPC=1⇒1=1−MPC
⇒ MPC = 1 - 1 = 0
Thus, when M = 1, MPC = 0.
Question 10
Find incremental investment when equilibrium GDP increases by Rs 50,000 and half of additional income is always saved in the economy.
Rs 25,000
Rs 35,000
Rs 15,000
Rs 50,000
SOLUTION
Solution : A
Change in savings =50,000×12=25,000
We know, MPS=ΔSΔY=25,00050,000=0.5
We know,
Multiplier (M)=11−MPC=1MPS
Or, M=ΔYΔI
Now, MPS = 0.5, we get ΔI=ΔYM
=50,0002=25,000 [M=1MPS=10.5=2]
Increase in GDP by Rs 50,000 is caused by increase in investment of Rs 25,000.