Question : The multiplier effect refers to the:
Option 1: Increase in consumption due to an increase in income
Option 2: Increase in investment due to an increase in consumption
Option 3: Increase in income due to an increase in investment
Option 4: Increase in income due to an initial change in spending
Correct Answer: Increase in income due to an initial change in spending
Solution : The correct answer is (d) Increase in income due to an initial change in spending
The multiplier effect is a concept in macroeconomics that explains how an initial change in spending can lead to a larger change in national income. When there is an increase in autonomous spending (such as government spending, investment, or consumption), it stimulates economic activity and generates additional rounds of spending.
The multiplier effect occurs because the increase in spending by one individual or sector becomes income for another individual or sector, who in turn spends a portion of that income. This process continues as the additional income earned from each round of spending leads to further increases in consumption, investment, and overall economic activity.
Question : The crowding-out effect refers to:
Option 1: A decrease in private investment due to an increase in government expenditure
Option 2: An increase in private investment due to an increase in government expenditure
Option 3: A decrease in government expenditure due to an increase in private investment
Option 4: An increase in government expenditure due to a decrease in private investment
Question : The wealth effect suggests that an increase in the price level leads to:
Option 1: A decrease in consumption expenditure
Option 2: An increase in consumption expenditure
Option 3: A decrease in investment expenditure
Option 4: An increase in investment expenditure
Question : The investment multiplier is 4. If there is an autonomous increase in investment spending of INR 500, what will be the change in equilibrium income?
Option 1: INR 500
Option 2: INR 2,000
Option 3: INR 1,000
Option 4: INR 2,500
Question : The investment multiplier is 3. If there is an autonomous increase in investment spending of INR 800, what will be the change in equilibrium income?
Option 1: INR 2,300
Option 2: INR 2,400
Option 3: INR 2,800
Option 4: INR 3,200
Question : The investment multiplier is 4. If there is an autonomous increase in investment spending of INR INR 1,000,
what will be the change in equilibrium income?
Option 1: INR 1,000
Option 2: INR 4,000
Option 3: INR 5,000
Option 4: INR 9,000
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