Tag: concept of consumption function, saving function and investment function

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Questions Related to concept of consumption function, saving function and investment function

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

A 100% Consumption Economy ______________________.

  1. Cannot have any Capital Formation

  2. Will become static and cannot grow

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

If an economy consumes everything it produces, there is no surplus left for investment. Without investment, there is no capital formation, and the economy cannot grow.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation is possible by _______________________.

  1. Using whole of the current capacity to produce only Consumer Goods

  2. Reducing present consumption to a certain extent

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Capital formation is only possible if resources are diverted from producing consumer goods to producing capital goods, which requires a reduction in present consumption.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation is required for _________________.

  1. Increasing the efficiency of production efforts

  2. Expansion of output of consumer goods in the future.

  3. Ensuring growth of the economy

  4. All the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Capital formation involves the accumulation of assets that increase an economy's productive capacity. This process facilitates higher production efficiency, future output growth, and overall economic development.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Ability to Save depends upon _________________.

  1. Average level of income

  2. Distribution of national income.

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The ability to save is fundamentally tied to the level of income available to individuals and how that income is distributed across the population. Higher income levels generally allow for more savings, and equitable distribution patterns influence the aggregate propensity to save.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

For the purpose of Capital Formation, which of the following create "Savings" in an economy?

  1. Individuals or Households

  2. Business Enterprises

  3. Government

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Savings in an economy are generated by various sectors, including households, business enterprises (retained earnings), and the government (budgetary surpluses). All these sectors contribute to the pool of funds available for capital formation.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Which of these is a source of savings for Government?

  1. Tax and Fees Collections

  2. Profits of PSUs

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Government savings are derived from the difference between its revenue and its consumption expenditure. Revenue sources include tax collections, fees, and the profits generated by public sector undertakings (PSUs).

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation involves ___________________.

  1. Creation of Savings

  2. Mobilisation of Savings

  3. Investment of Savings into Real Capital

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Capital formation is a multi-stage process that begins with the creation of savings, requires the mobilization of these savings through financial intermediaries, and culminates in the actual investment of those funds into productive real capital assets.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Real Capital Formation requires ___________________.

  1. An entrepreneurial class which is prepared to bear the risk of business

  2. Economic and industrial policies in which Investment is given initiative

  3. An inducement to invest, e.g. prospective rate of profit

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Real capital formation requires a conducive environment that includes risk-taking entrepreneurs, supportive government policies, and economic incentives like the potential for profit to encourage investment.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Inducement to Invest is influenced by _______________________.

  1. Prospective Rate of Profit

  2. Rate of Interest

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The decision to invest is primarily driven by the expected return on the investment (prospective rate of profit) compared to the cost of borrowing the funds (rate of interest).

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

In the pre-reforms period (i.e. before 1991), import permission was available primarily for _______________.

  1. Consumer Goods

  2. Capital Goods

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the pre-1991 era, India followed a policy of import substitution. Import permissions were strictly regulated and prioritized for essential capital goods and machinery needed for industrialization, rather than consumer goods.