Chapter 4

1. What is saving defined as in economics?

A) Income spent on goods and services

B) Income minus consumption

C) Investments in the stock market

D) Total income received

2. How is the marginal propensity to save (MPS) calculated?

A) Change in saving divided by the change in income

B) Total saving divided by total income

C) Change in income divided by the change in saving

D) Average saving divided by average income

3. If an individual's income increases by $100, and saving increases by $20, what is the MPS?

A) 0.2

B) 0.5

C) 2.0

D) 5.0

4. What does an MPS of 0.8 indicate?

A) Individuals save 80% of their income.

B) Individuals save 20% of their income.

C) There is no relationship between saving and income.

D) Individuals spend more than their income.

5. How is the average propensity to save (APS) calculated?

A) Total saving divided by total income

B) Change in saving divided by the change in income

C) Change in income divided by the change in saving

D) Average saving divided by average income

6. If an individual's total income is $1,000, and the total saving is $200, what is the APS?

A) 0.2

B) 0.5

C) 2.0

D) 5.0

7. What does an APS of 0.4 indicate?

A) Individuals save 40% of their income.

B) Individuals save 60% of their income.

C) There is no relationship between saving and income.

D) Individuals spend exactly their income.

8. If an individual's income increases by $500, and the saving increases by $100, what is the
APS?

A) 0.2

B) 0.25

C) 2.0

D) 5.0

9. What does an MPS of 0.1 imply?

A) Individuals save 10% of their income.

B) Individuals save 90% of their income.

C) There is no relationship between saving and income.

D) Individuals spend more than their income.

10. If an individual's total income is $2,000, and the total saving is $200, what is the average
propensity to save (APS)?
A) 0.1

B) 0.2

C) 0.5

D) 1.0

11. What is consumption in the context of economics?

A) Production of goods and services

B) The purchase of goods and services by households

C) Investment in financial assets

D) Government spending

12. How is the Marginal Propensity to Consume (MPC) defined?

A) The change in consumption divided by the change in income

B) The total consumption divided by the total income

C) The change in income divided by the change in consumption

D) The ratio of investment to consumption

13. If an individual's income increases by $100 and their consumption increases by $80,
what is the Marginal Propensity to Consume (MPC)?

A) 0.2

B) 0.8

C) 1.0

D) 1.25

14. What does the Average Propensity to Consume (APC) represent?

A) The ratio of consumption to income

B) The change in consumption to the change in income

C) The ratio of savings to consumption

D) The change in income to the change in consumption

15. If a household's income is $1,000 and their consumption is $800, what is the Average
Propensity to Consume (APC)?

A) 0.2

B) 0.5

C) 0.8

D) 1.25

16. What is the relationship between MPC and MPS (Marginal Propensity to Save)?

A) MPC + MPS = 1

B) MPC - MPS = 1

C) MPC * MPS = 1

D) MPC / MPS = 1

17. If the MPC is 0.75, what is the MPS?

A) 0.25

B) 0.50

C) 0.75

D) 1.25

18. How is the Marginal Propensity to Consume (MPC) related to a consumption function?

A) It is the intercept of the consumption function

B) It is the slope of the consumption function

C) It is the y-intercept of the consumption function

D) It is the area under the consumption function

19. What happens to the Average Propensity to Consume (APC) as income increases?

A) APC increases

B) APC decreases

C) APC remains constant

D) APC becomes negative

20. If a household's income increases by $200 and their consumption increases by $150,
what is the Average Propensity to Save (APS)?

A) 0.25

B) 0.50

C) 0.75

D) 1.0

21. What is investment in the context of economics?

A. Spending on goods and services

B. Saving money in a bank

C. Accumulating capital assets to generate future income

D. Paying off debts

22. How is investment related to saving?

A. They are unrelated concepts

B. Investment is a form of saving

C. Saving is a form of investment

D. Saving and investment always have opposite effects on the economy

23. What is the primary motive for individuals to invest?

A. Immediate consumption

B. Maximizing debt

C. Achieving financial goals and future returns

D. Reducing savings

24. In the national income accounting identity, which equation reflects the relationship
between saving, consumption, and investment?

A. S = C + I

B. Y = C + S

C. Y = C + I
D. S = Y + I

25. What happens to investment if there is an increase in national saving?

A. Investment increases

B. Investment decreases

C. Investment remains unchanged

D. Investment becomes negative

26. How does an increase in consumption affect investment in the short run?

A. Increases investment

B. Decreases investment

C. Has no effect on investment

D. Causes investment to fluctuate randomly

27. Which of the following is an example of financial investment?

A. Buying a new car

B. Purchasing government bonds

C. Paying off a credit card debt

D. Renting a house

28. What is the relationship between interest rates and investment?

A. Higher interest rates lead to increased investment

B. Lower interest rates lead to increased investment

C. Interest rates have no impact on investment

D. Interest rates only affect consumption

29. If the government implements policies to encourage saving, what is likely to happen to
investment?

A. Investment increases

B. Investment decreases
C. Investment remains unchanged

D. Investment becomes unpredictable

30. Which of the following is a factor that influences investment decisions by businesses?

A. Consumer preferences

B. Government regulations

C. International trade policies

D. All of the above

Work out the following questions

1. If a person's income is $50,000, and they spend $40,000 on goods and services, what
is their saving?

2. If the marginal propensity to consume (MPC) is 0.8, what is the marginal propensity to
save (MPS)?

3. If a household's disposable income is $60,000, and they consume $45,000, what is their
saving?

4. If the total investment in an economy is $200,000 and the government runs a budget
surplus of $50,000, what is the private saving?

5. If a person's disposable income is $30,000, and they save $5,000, what is their average
propensity to save (APS)?

6. If the government increases its spending by $20,000 and households respond by

increasing their saving by $10,000, what is the impact on the overall saving in the
economy?

7. If the interest rate is 5%, and a person invests $1,000, how much interest will they earn
in one year?

8. If the autonomous consumption is $5,000, and the marginal propensity to consume is

0.75, what is the total consumption at an income of $20,000?

9. If the national income is $500,000, and the government expenditure is $100,000, what is
the private saving if taxes are $50,000?
10. If a company's retained earnings increase by $30,000, and they distribute $20,000 as
dividends, what is their net investment?