Tag: economics

Questions Related to economics

If income changes from 1000 to 1500 and saving changes from 200 to 250, then calculate APS . 

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

  1. 0.2

  2. 0.16

  3. 0.2 for the time period 1 and 0.16 for the time period 2

  4. 0.16 for the time period 1 and 0.2 for the time period 2

Show answer
Correct Option: C
Explanation:

APS $= \dfrac{Savings}{Income}$


We can calculate APS for both time period.

In the first time period, S = 200 and Y = 1000. 
APS = $\dfrac{200}{1000} = $ $0.2$

 In the second time period, S = 250 and Y = 1500. 
APS = $\dfrac{250}{1500} =$ $0.16$

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 consumption?

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

  1. Rs 2800 crore

  2. Rs 3500 crore

  3. Rs 1450 crore

  4. Rs 1750 crore

Show answer
Correct Option: B
Explanation:

Keynesian consumption function is given as: C = a + bY 

where, C= Consumption, 

a = autonomous consumption and 

b = marginal propensity to consume 

C = 700 + (0.8 x 3500) = 2800.

Consumption = Rs. 3500 crore.

If MPC = 0.8 and fixed consumption is 200, write the saving equation.

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

  1. S = -200 - 0.8Y

  2. S = -200 + 0.2Y

  3. S = 200 + 0.8 Y

  4. S = -200 + 0.8 Y

Show answer
Correct Option: B
Explanation:

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

where, S= Savings, 

Y = Income

a = autonomous consumption and 

b = marginal propensity to consume 

S = -200 + (1- 0.8) x Y 

S = -200+0.2Y

If MPC = 0.7 and fixed consumption is 700, write the saving equation.

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

  1. S = 700 - 0.7Y

  2. S = 0.7 Y + 700

  3. S = -700 + 0.3Y

  4. S = 700 - 0.3Y

Show answer
Correct Option: C
Explanation:

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

where, S= Savings, 

Y = Income

a = autonomous consumption and 

b = marginal propensity to consume 

S = -700 + (1- 0.7) x Y  

S = -700 + 0.3 Y

If income changes from 3000 to 4500 and saving changes from 600 to 900, then calculate APS?

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

  1. 0.20

  2. 0.33

  3. 0.13

  4. 0.25

Show answer
Correct Option: A
Explanation:

APS $= \dfrac{Savings}{Income}$


We can calculate APS for both time period.

In the first time period, S = 600 and Y = 3000. 
APS = $\dfrac{600}{3000} = $ $0.2$

 In the second time period, S = 900 and Y = 4500. 
APS = $\dfrac{900}{4500} =$ $0.2$

In an economy, the population spends Rs 150 crore on absolute necessities needed to sustain themselves. The current income is Rs 450 crore and MPC is 0.6. What is the level of consumption?

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

  1. Rs. 270 crore

  2. Rs. 450 crore

  3. Rs 420 crore

  4. Rs 470 crore

Show answer
Correct Option: C
Explanation:

The Keynesian consumption is given as: C = a + bY 

where, C= Consumption, 

a = autonomous consumption and 

b = marginal propensity to consume 

C = 150 + (0.6 x 450) = 420.

Consumption = Rs. 420 crore.

In an economy, the population spends Rs 150 crore on absolute necessities needed to sustain themselves. The current income is Rs 450 crore and MPC is 0.6. What is the level of saving?

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

  1. Rs 30 crore

  2. Rs 270 crore

  3. Rs 420 crore

  4. Rs 180 crore

Show answer
Correct Option: A
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 = -150 + (1- 0.6) x 450 = 30.
Saving = Rs. 30 crore.

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 consumption?

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

  1. Rs 1250 crore

  2. Rs 1500 crore

  3. Rs 1750 crore

  4. Rs 2500 crore

Show answer
Correct Option: C
Explanation:

Keynesian consumption function is given as: C = a + bY 

where, C= Consumption, 

a = autonomous consumption and 

b = marginal propensity to consume 

C = 500 + (0.5 x 2500) = 1750.

Consumption = Rs. 1750 crore.

If MPC = 0.8 and fixed consumption is 600, write the consumption equation.

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

  1. C = 600 + 0.8Y

  2. C = 600 - 0.8Y

  3. C = 600 + 0.2Y

  4. C = 0.2 Y - 600

Show answer
Correct Option: A
Explanation:

The Keynesian consumption function is given as: C = a + b Y 

where, C= Consumption, 

Y = Income

a = autonomous consumption and 

b = marginal propensity to consume 

So C = 600 + 0.8 Y

Which of the following factors don't affect the propensity to consume in an economy?

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

  1. Rate of interest

  2. Wealth

  3. Taxes

  4. Consumer credit

Show answer
Correct Option: C
Explanation:

The factors that influence consumption and savings behaviour in the economy are as follows:

Rate of interest: Commercial bank offer a certain rate of interest on the deposits held by public and charges rate of interest on the loans given to public. When people do not want to purchase goods and services, they keep their money in the bank to earn the rate of interest. But when they want to buy goods and services, they withdraw money from the bank and lose interest in the process. In this way, the rate of interest plays an important role in influencing a persons decision to consume.

Wealth: Propensity to consume is influenced by a persons holding of wealth. People who have wealth in the form of gold, jewellery, ownership of land and building, shares and bonds etc enjoy a higher level of income generated from the wealth. Accordingly, their consumption level will be higher.

Consumer credit: Availability of consumer credit influences consumption behaviour to a large extent in the economy. There are many durable goods which consumers want to buy. But due to lack of credit facility, they are not able to buy them as they are costly items.