Lesson M1.2.2

M1.2.2 Income, consumption and the role of expectations Quiz: OCR Economics, Unit 6

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M1.2.2, Income, consumption and the role of expectations: 20 multiple choice questions for the OCR Economics (H460), Unit 6: Aggregate demand and aggregate supply, written with Revision Ninja.

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The 20 questions

  1. What term describes disposable income remaining after subtracting essential spending on basic living costs?

    • Autonomous income
    • Gross income
    • Disposable income
    • Discretionary income

  2. What is the proportion of total income that a household spends on consumption called?

    • Average propensity consume
    • Marginal propensity save
    • Marginal propensity consume
    • Average propensity save

  3. If disposable income increases by £100 and consumption increases by £80, what is the MPC?

    • 1.25
    • 0.2
    • 0.8
    • 0.75

  4. Which component accounts for the largest proportion of total aggregate demand in the UK economy?

    • Investment expenditure
    • Consumer expenditure
    • Government spending
    • Net exports

  5. What economic concept describes increased consumer spending caused by a rise in asset prices?

    • Wealth effect
    • Income effect
    • Liquidity effect
    • Multiplier effect

  6. What term describes consumption expenditure that occurs even when disposable income is zero?

    • Induced consumption
    • Discretionary consumption
    • Derived consumption
    • Autonomous consumption

  7. If the marginal propensity to save is 0.25, what is the marginal propensity to consume?

    • 4.0
    • 0.75
    • 1.25
    • 0.25

  8. According to Keynesian theory, what is the primary determinant of household consumption expenditure?

    • Total accumulated wealth
    • Expected inflation
    • Future interest rates
    • Current disposable income

  9. What name did Keynes give to the emotional waves of consumer and business confidence?

    • Animal spirits
    • Paradox of thrift
    • Moral hazard
    • Irrational exuberance

  10. What calculation determines the household savings ratio in an economy?

    • Consumption divided by savings
    • Investment divided by income
    • Savings divided by income
    • Income divided by savings

  11. If a consumer's income rises from £20,000 to £25,000 and spending rises by £3,000, calculate MPC.

    • 0.6
    • 0.8
    • 0.12
    • 0.4

  12. What term refers to income after the deduction of direct taxes and addition of state benefits?

    • Gross income
    • Real income
    • Discretionary income
    • Disposable income

  13. How does an increase in the central bank base interest rate usually affect consumer borrowing?

    • Decreases borrowing
    • Increases borrowing
    • Has no effect
    • Maximises borrowing

  14. What term describes consumer spending that changes directly in response to changes in disposable income?

    • Fixed consumption
    • Inelastic consumption
    • Autonomous consumption
    • Induced consumption

  15. If total consumption spending is £80bn and total disposable income is £100bn, what is the APC?

    • 0.2
    • 0.8
    • 8.0
    • 1.25

  16. What impact does an increase in consumer confidence generally have on aggregate demand?

    • Shifts AD left
    • Shifts AD right
    • Shifts SRAS left
    • Shifts LRAS right

  17. Which hypothesis suggests consumers plan spending based on their expected lifetime earnings?

    • Permanent wealth paradox
    • Relative price theory
    • Absolute income hypothesis
    • Life cycle hypothesis

  18. How does a sharp rise in unemployment expectations typically affect the personal saving ratio?

    • Eliminates saving ratio
    • Has no effect
    • Increases saving ratio
    • Decreases saving ratio

  19. What term describes the ratio of the change in saving to the change in income?

    • Marginal propensity consume
    • Savings ratio
    • Marginal propensity save
    • Average propensity save

  20. If disposable income is £500 and autonomous consumption is £100 with MPC 0.6, calculate total consumption.

    • £360
    • £500
    • £300
    • £400

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