Tag: production, consumption, saving and economic units

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Questions Related to production, consumption, saving and economic units

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Study of how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices is called study of __________.

  1. consumption

  2. production

  3. distribution

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The theory of consumption is studied through the indifference map.
The consumption function is created on the basis of the wants of the consumers (and plotted as an indifference curve) and the budget line represents the ability to pay and depends on the consumers' income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Break-even point is achieved when: 

  1. National Income = Consumption

  2. Consumption = Saving

  3. Consumption = Investment

  4. National Income > Consumption
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Break even point refers to the point where the income=consumption or savings= 0. It is the point where the consumption curve intersects the 45 degree line. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Tick the wrong option _________________.

  1. APC can be more than 1

  2. APC can be equal to 1

  3. APC can be negative

  4. APC can never be 0
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income which can never be negative because consumption is never negative owing to the very existence of life and basic needs to satisfy it. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Which of the following can have a negative value?

  1. APC

  2. MPC

  3. MPS

  4. APS
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

APS refers to Average Propensity to save which defines the amount of savings in every 1 rupee of income for all level of income which can never be more than one as savings can be negative in situations when consumption is more than the national income leading to dis-savings in the economy i.e. before the break even point when APS<0.

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

AD Curve starts ____________.

  1. From the origin

  2. Point Below the origin

  3. Point above the origin

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Aggregate demand curve is upward sloping showing a positive relation between level of income and overall expenditure in the economy. The curve intercepts on Y-axis because even at zero level of income, there is some consumption which is required for the very existence of life. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Which of the following is not true about AD in a two-sector economy?

  1. AD = Consumption + Saving

  2. AD curve starts from some point above the origin

  3. AD = Consumption + Investment

  4. AD curve has a positive slope
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The aggregate demand in two sector economy only includes the expenditure made by the consumer sector and the producer sector. The expenditure by the government sector and net exports are not included in the two sector economy. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

The value of _____ can never be negative, while can have a value equal to one. 

  1. APS, APC

  2. MPG, APS

  3. APC, APS

  4. MPS, APC
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income which can never be negative because consumption is never negative owing to the very existence of life and basic needs to satisfy it while it can be more than one as long as consumption is more national income, i.e. before the break-even point, APC > 1. 

Marginal Propensity to save refers to the percentage change in savings for every one rupee of change in the income. It is the ratio between the change in income and its corresponding change in savings. It can never be negative as it is a change in the value when the value of income changes while it can be equal to one if the overall change in the value of income is used in savings. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Which of the following expression is correct? 

  1. $APC = \frac { Consumption }{National Income}$
  2. $APC = \frac { Change \, in \,Consumption }{ Change \, in \,National\, Income}$
  3. $APC = APS -1$
  4. $APC = \frac {National Income} { Consumption }$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. Therefore,

APC= Consumption/ National Income= C/Y. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

Consumption function is the functional relationship between ______ and  ______.

  1. Consumption, Aggregate demand

  2. Consumption, National Income

  3. Aggregate Demand, Aggregate Supply

  4. National Income, Private Income
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Consumption function refers to the standard equation of consumption which defines the relationship between consumption and income where consumption value can be derived at each level with the use of income value. 

C= c+ bY where c=autonomous consumption, b= marginal propensity to consume, and Y= income. 

Multiple choice economics consumption and investment functions determinants of consumption function and savings function production, consumption, saving and economic units ex ante and ex post

If $C = 100 + 0.75\,Y$, then Saving Function will be expressed as:

  1. $S=100 +0.25\,Y$
  2. $S=100 + 0.75\,Y$
  3. $S = 100 + 0.35\,Y$
  4. $S =75+0.25\,Y$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The consumption function is C= 100+0.75Y where Y is the income at different level in the economy. 

Income = consumption + savings 

=> Savings = Income - consumption 

=> S = Y- C

=> S = Y - ( 100 + 0.75Y)

=> S = Y- 100 - 0.75Y

=> S = - 100 + Y ( 1 - 0.75) 

=> S = -100 + 0.25Y 

Therefore, the saving function is S= -100 + 0.25Y  where autonomous savings= -100, MPS= 0.25 and Y is income at all levels.