ECS 1601

Study Unit 6 Quiz

Multiple Choice Questions (MCQs)

1.

2.

3.

4.

The consumption schedule shows that

[1]

the marginal propensity to consume increases as GDP increases

[2]

households increase their spending when their wealth increases

[3]

an increase in income leads to an equivalent increases in consumption expenditure

[4]

an increase in income increases consumption by an amount smaller than the increases

in income

Jabus monthly disposable income increases from R2000 to R2500. 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

If the interest rate is high, investment will be _______, and if income increases it will ______
on investment because investment is a type of _________ spending.
[1]

low; no effect; autonomous

[2]

high; a positive effect; induced

[3]

low; a negative effect; induced

[4]

high; no effect; autonomous

Paradox of thrift is:

[1]

when consumer save more due to a favourable economic environment, but instead
causing the economy to worsen

[2]

when consumer spend more due to a unfavourable economic environment, but instead
causing the economy to worsen

[3]

when consumer save more due to a unfavourable economic environment, but instead
causing the economy to worsen

[4]

when consumer spend more due to a favourable economic environment, but instead
causing the economy to worsen

Quiz will be discussed on your e-tutor site from Monday 24 March

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ECS 1601
Study Unit 6 Quiz

True and 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 there is an excess demand for a certain product, inventories will increase

8.

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

spending.

Long Questions
9.

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.

9.1

Based on this information, derive the consumption function for Zeno.

9.2

Calculate the level of consumption if income is equal to

i) Zero
ii) R100 million
iii) R400 million
iv) R800 million

9.3

Calculate the multiplier

9.4

Calculate the equilibrium level of income in Zeno.

9.5

Graphically present the expenditure line. Where aggregate spending is on the vertical
axis and income (or production) is on the horizontal axis. Clearly indicate the intersect
on the vertical axis and the slope of the expenditure line. Also show where equilibrium
is on the expenditure line.

Quiz will be discussed on your e-tutor site from Monday 24 March

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ECS 1601
Study Unit 6 Quiz
10.

Given the following information, answer the questions that follow.

C = 150 + 0.8Y
I = 250

10.1 What is the value of autonomous consumption in this economy?

10.2 What is the slope of the consumption function in this economy?
10.3 What is the value of the MPC in this economy?
10.4 What is the value of the MPS in this economy?
10.5 What is the value of total autonomous spending?

Quiz will be discussed on your e-tutor site from Monday 24 March

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