Tag: keynesian law of consumption and propensity to consume

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Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

___________________ is consumption at zero level of income.

  1. Direct consumption

  2. Autonomous consumption

  3. Indirect consumption

  4. Induced consumption
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Autonomous consumption refers to that consumption which occurs when there is no income in the economy. It is the minimum level of consumption that takes place in the economy due to the requirement of the basic needs of life. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Marginal Propensity to Consume is denoted as ___________________.

  1. $MPC=\dfrac {\triangle C}{\triangle Y}$
  2. $MPC=\dfrac {\triangle C}{\triangle S}$
  3. $MPC=\dfrac {\triangle C}{\triangle I}$
  4. $MPC=\dfrac {\triangle I}{\triangle Y}$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.
Marginal propensity to consume = ΔC/ΔY 
where ΔC is the Change in consumption and ΔY is the change in income in the economy.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Marginal propensity to consume refers to the effect of additional income on consumption.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Marginal Propensity to Consume (MPC) is defined as the change in consumption resulting from a change in income.

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

How is marginal propensity to consumed expressed mathematically?

  1. C = c (Y 0) = c.Y

  2. C = c (Y 0) = I-K

  3. C = c (I Y) = c.Y

  4. C = c (Y 0) k
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.

Mathematically, 

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

Therefore, marginal propensity to consume is expressed as a product with the income earned by the economy. 


Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

Higher level of current consumption means ___________.

  1. higher economic growth in future

  2. slower economic growth in future

  3. higher capital formation in future

  4. no change in growth rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Resources are scarce in nature, so if it will be consumed in large amount then future generation will not be able to meet their needs and it will result in slower economic growth. 

As income is either consumed or invested, therefore if the consumption is greater than the investment then the proportion of income invested will be less which will hamper the future income and which will again decrease the investment that will ultimately result in slower economic growth in future. 

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

In an economy, the population spends Rs 700 crore on absolute necessities needed to sustain themselves. The current income is Rs 3500 crore and MPC is 0.8. What is the level of saving?

  1. Zero

  2. Rs 30 Crore

  3. Rs 700 crore

  4. Rs 350 crore
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Keynesian saving function is given as: S = -a +(1- b) Y 

where, S= Savings, 

a = autonomous consumption and 

b = marginal propensity to consume (MPC) 

S = -700 + (1- 0.8) x 3500 = 0.

Level of savings = 0

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

The formula for the MPC is ___________.

  1. the change in consumption divided by the change in income

  2. consumption divided by income

  3. consumption plus saving divided by income

  4. the change in income divided by the change in consumption.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Consumption is dependent on income and thus, consumption changes with change in income. Marginal Propensity to Consume (MPC) refers to the change in consumption level that takes place due to an additional unit of income earned. 
Symbolically: $MPC=\dfrac{\text{Change in consumption}}{\text{Change in income}}$

Multiple choice economics consumption and investment functions keynesian law of consumption and propensity to consume ex ante and ex post concept of consumption function, saving function and investment function

In an economy, the population spends Rs 500 crore on absolute necessities needed to sustain themselves. The current income is Rs 2500 crore and MPC is 0.5. What is the level of saving?

  1. Rs 1750 crore

  2. Rs 750 crore

  3. Rs 1250 crore

  4. Rs 2250 crore
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Keynesian saving function is given as: S = -a +(1- b) Y 

where, S= Savings, 

a = autonomous consumption and 

b = marginal propensity to consume 

S = -500 + (1- 0.5) x 2500 = 750.

Level of savings = Rs. 750 crore.