Circular Flow & Multiplier – A-Level MCQ Practice

What is not considered an injection in the circular flow of income?

• A) Exports

• B) Investment

• C) Savings

• D) Government spending

In a four-sector economy, income equilibrium occurs when:

• A) C + I + G = C + I + G + (X – M)

• B) S + T + M = I + G + X

• C) Y = C + I + G – T

• D) X – M = G – T

Which is a necessary assumption of the Keynesian multiplier model?

• A) increasing APS

• B) flexible costs and prices

• C) full employment of resources

• D) open economy

The marginal propensity to consume (MPC) is 0.75. What is the value of the multiplier?

• A) 2

• B) 3

• C) 4

• D) 5

An increase in autonomous investment causes national income to increase by $200 million. If the marginal propensity to consume is 0.8, what was the original increase in investment?

• A) $25 million

• B) $40 million

• C) $50 million

• D) $160 million

Which of the following best explains the 'accelerator' theory of investment?

• A) Investment increases only when interest rates fall.

• B) Firms increase investment when they have higher profits.

• C) Investment is driven by the rate of change in national income.

• D) Investment is entirely determined by government incentives.

Which of the following would shift the consumption function upward?

• A) An increase in interest rates

• B) A decrease in consumer confidence

• C) A reduction in income tax

• D) A fall in household wealth

A government wants to eliminate a deflationary gap of $100 billion. If the marginal propensity to save is 0.2, what change in government spending is required?

• A) $80 billion

• B) $50 billion

• C) $25 billion

• D) $20 billion

A rise in imports relative to exports would most likely cause:

• A) An increase in net exports

• B) An increase in injections

• C) A decrease in leakages

• D) A fall in aggregate demand

Which of the following is most likely to increase the value of the multiplier?

• A) Higher marginal propensity to import

• B) Higher marginal propensity to save

• C) Higher marginal tax rate

• D) Higher marginal propensity to consume