Q.1 What does the multiplier in economics primarily measure?
Change in income due to change in investment
Change in savings due to change in consumption
Change in demand due to change in supply
Change in wages due to change in employment
Explanation - The multiplier measures how much national income changes when investment changes. It shows the amplification effect of initial spending.
Correct answer is: Change in income due to change in investment
Q.2 Who is most closely associated with the development of the multiplier concept?
John Maynard Keynes
Alfred Marshall
Adam Smith
David Ricardo
Explanation - Keynes popularized the multiplier concept in his General Theory, linking investment to income changes.
Correct answer is: John Maynard Keynes
Q.3 The accelerator principle is concerned with the relationship between:
Investment and changes in income
Consumption and savings
Wages and employment
Exports and imports
Explanation - The accelerator principle states that investment depends on the rate of change of income, not just the level of income.
Correct answer is: Investment and changes in income
Q.4 If the marginal propensity to consume (MPC) is 0.8, the multiplier value is:
2
4
5
10
Explanation - The multiplier = 1 / (1 - MPC). With MPC = 0.8, multiplier = 1 / (0.2) = 5.
Correct answer is: 5
Q.5 The accelerator effect is stronger when:
Income changes are rapid
Income changes are stable
Savings are high
Consumption is constant
Explanation - The accelerator works more strongly when income changes quickly, creating demand for capital goods.
Correct answer is: Income changes are rapid
Q.6 The multiplier process stops when:
Income is constant
Leakages equal injections
Savings exceed investment
Consumption becomes zero
Explanation - The multiplier stops when leakages (savings, imports, taxes) equal injections (investment, exports, government spending).
Correct answer is: Leakages equal injections
Q.7 Which of the following is NOT a leakage from the multiplier process?
Savings
Imports
Taxes
Consumption
Explanation - Consumption is an injection into the circular flow, not a leakage. Leakages reduce multiplier effects.
Correct answer is: Consumption
Q.8 The combined effect of multiplier and accelerator is often referred to as:
Super Multiplier
Marginal Multiplier
Dual Accelerator
Circular Multiplier
Explanation - The interaction of multiplier and accelerator is called the super multiplier, showing a stronger combined effect on income.
Correct answer is: Super Multiplier
Q.9 A higher MPC leads to:
A higher multiplier
A lower multiplier
No effect on multiplier
A negative multiplier
Explanation - Since multiplier = 1 / (1 - MPC), a higher MPC increases the value of the multiplier.
Correct answer is: A higher multiplier
Q.10 The accelerator assumes that firms invest to:
Maintain a constant capital-output ratio
Maximize consumption
Reduce employment
Increase savings
Explanation - The accelerator principle assumes firms invest to keep a stable capital-output ratio in response to output changes.
Correct answer is: Maintain a constant capital-output ratio
Q.11 If MPC is 0.5, what is the value of the multiplier?
1
2
3
5
Explanation - Multiplier = 1 / (1 - MPC). With MPC = 0.5, multiplier = 1 / (0.5) = 2.
Correct answer is: 2
Q.12 The multiplier process illustrates the importance of:
Aggregate demand
Aggregate supply
Money supply
Price stability
Explanation - The multiplier shows how changes in demand (investment) affect income and output through induced consumption.
Correct answer is: Aggregate demand
Q.13 The accelerator theory emphasizes:
Induced investment
Autonomous consumption
Government spending
Foreign trade
Explanation - Accelerator theory highlights how investment is induced by changes in demand and income.
Correct answer is: Induced investment
Q.14 What happens to the multiplier if MPC = 1?
Multiplier becomes infinite
Multiplier becomes zero
Multiplier remains 1
Multiplier becomes negative
Explanation - With MPC = 1, people consume all income. Hence, multiplier = 1 / (1 - 1) = infinite.
Correct answer is: Multiplier becomes infinite
Q.15 Which of the following best represents autonomous investment?
Investment independent of income
Investment induced by demand
Investment financed by savings
Investment dependent on exports
Explanation - Autonomous investment occurs regardless of income changes, unlike induced investment.
Correct answer is: Investment independent of income
Q.16 If MPC decreases, the multiplier will:
Increase
Decrease
Stay constant
Become zero
Explanation - Since multiplier = 1 / (1 - MPC), a fall in MPC reduces the multiplier value.
Correct answer is: Decrease
Q.17 The super multiplier combines:
Multiplier and accelerator effects
Consumption and savings
Exports and imports
Supply and demand
Explanation - The super multiplier is a combined effect of the multiplier (consumption) and accelerator (investment).
Correct answer is: Multiplier and accelerator effects
Q.18 In the simple multiplier model, all investment is assumed to be:
Autonomous
Induced
Foreign-financed
Private only
Explanation - In the simple Keynesian multiplier, investment is assumed autonomous, not depending on income.
Correct answer is: Autonomous
Q.19 Which of the following reduces the actual value of multiplier in an economy?
High imports
High consumption
High investment
High wages
Explanation - Imports act as leakages, reducing the impact of the multiplier on domestic income.
Correct answer is: High imports
Q.20 What is the minimum possible value of multiplier?
Zero
One
Two
Infinite
Explanation - The multiplier cannot be less than one, because even with MPC = 0, multiplier = 1 / (1 - 0) = 1.
Correct answer is: One
Q.21 The accelerator theory was mainly developed by:
Albert Aftalion
Keynes
Ricardo
Smith
Explanation - The accelerator principle was first outlined by Aftalion and later refined by others.
Correct answer is: Albert Aftalion
Q.22 Multiplier works effectively in which type of economy?
Closed economy without leakages
Open economy with imports
Economy with high taxes
Economy with high savings
Explanation - The multiplier effect is strongest when there are no leakages like imports, taxes, or savings.
Correct answer is: Closed economy without leakages
Q.23 If investment increases by $100 and MPC = 0.75, the income increase will be:
$200
$300
$400
$500
Explanation - Multiplier = 1 / (1 - 0.75) = 4. Thus, ΔY = 100 × 4 = 400.
Correct answer is: $400
Q.24 The accelerator principle assumes investment depends on:
Rate of change of output
Absolute level of savings
Interest rate alone
Government spending
Explanation - Accelerator focuses on how changes in output influence investment decisions.
Correct answer is: Rate of change of output
Q.25 The value of multiplier is inversely related to:
Marginal propensity to save
Marginal propensity to consume
Aggregate demand
Autonomous investment
Explanation - Multiplier = 1 / (MPS). Thus, a higher MPS means a lower multiplier.
Correct answer is: Marginal propensity to save