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

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

Lower __________ leads to low savings which lead to a lower rate of capital formation.

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

  1. per capita income

  2. gross domestic product

  3. development plan

  4. economic instability

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Correct Option: A

Besides the level of income, the taxation policies of the government also affect the ability to save.

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

  1. True

  2. False

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Correct Option: A
Explanation:

Even when the income of person is high , he is left with less real income after paying the high taxes levied by the government this then affects both the level of consumption and savings of the person.

When the rates of income tax and sales tax are high, the major portion of the earnings of people goes to the government exchequer and very little remains with people to save and invest.

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

  1. True

  2. False

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Correct Option: A
Explanation:

When high rate of taxes (income tax and sales tax)  are imposed by the government ,the real income of the consumers go down and hence the purchasing power falls so in turn savings of the people falls accordingly.

Capital formation is highly affected by market conditions of boom and depression.

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

  1. True

  2. False

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Correct Option: A
Explanation:

During boom market condition, the economy flourishes,investment rises and thus capital formation rises and during depression period , market sinks down and rate of capital formation falls.

Higher income and low taxation lead to higher rate of capital formation.

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

  1. True

  2. False

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Correct Option: A
Explanation:

Higher income and low taxation  causes the people to save more ,and thus investment rises which in turn leads to higher rate of capital formation.

The prosperity encourages and enhances the saving but depression reduces the saving of people.

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

  1. True

  2. False

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Correct Option: A
Explanation:

The prosperity of a country helps to provide the citizens with more investment channels and thus people tend to save more but during depression period of an economy ,market sinks down and falls into a low -equilibrium trap which results in less investment,less savings and low rate of capital formation.

The inadequate number of investment channels is one of the reasons for low capital formation in India.

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

  1. True

  2. False

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Correct Option: A
Explanation:

Insufficient options to invest in an economy results in low net capital accumulation during a period of time in an economy since the people of that economy is left with very few options to invest.

Plant and machinery are ________.

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

  1. producer's goods

  2. consumers goods

  3. distributors goods

  4. free goods

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Correct Option: A
Explanation:

Plant and machinery are Producers goods. Together with stocks and work in progress, these goods are collectively termed 'Capital'.

What does capital formation mean?

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

  1. The increase in the stock of real capital in a country

  2. The increase in the supply of money in a country

  3. The decrease in the supply of money in a country

  4. The improvement of technological factors

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Correct Option: A
Explanation:

Capital formation means the net accumulation of stock in a country during a particular accounting period.

The term capital in economics means ___________.

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

  1. factor of production

  2. investment in shares and debentures

  3. funds brought in by the entrepreneur

  4. an important city of the state

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Correct Option: A
Explanation:

Capital is used as a factor of production in economics as it helps in production process and helps to increase the productivity.