Tag: economics

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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

The Consumption Function shows the _____________ .

  1. relationship between consumption and income.

  2. relationship between investment and saving.

  3. relationship between consumption and saving.

  4. relationship between income and saving.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Consumption Function describes the functional relationship between Consumption and Income. 

$C= f(Y)$
Here, C is the dependent variable and Y is the independent variable. It is mainly used to describe the relation between Total Consumption and National Income on the aggregate level.

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 dealing with Propensity to consume, Keynes considered two attributes:

  1. APC and MPC

  2. APS AND MPS

  3. Demand and Supply

  4. Income and consumption
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In dealing with Propensity to consume, Keynes considered two attributes: 

1. APC : APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. 
Average propensity to consume = C/Y where C is the consumption and Y is the income in the economy 

2. MPC: 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

A schedule of the propensity to consume is ________________.

  1. A statement showing the functional relationship between the level of aggregate consumption and aggregate income at each level of income.

  2. A statement showing the functional relationship between the level of consumption and savings at each level of income.

  3. A statement showing the functional relationship between the level of aggregate consumption and investment at each level of income.

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

A schedule of propensity to consume refers to a statement that shows the functional relationship between the level of aggregate consumption and aggregate income in the economy at each level of output produced. 

In dealing with Propensity to consume, Keynes considered two attributes: 
1. APC : APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. 

Average propensity to consume = C/Y where C is the consumption and Y is the income in the economy 

2. MPC : 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

$APC=\dfrac{C}{Y}$

  1. True

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

True.

 APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. 
Average propensity to consume = C/Y 
where C is the consumption and Y is the 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

Calculate APC:
If Y=$3,000$ and C=$2,600$.

  1. 0.86

  2. 0.80

  3. 0.79

  4. 1.5
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. 
Average propensity to consume = C/Y 
where C is the consumption and Y is the income in the economy 
If consumption is 2,600 and income is 3,000, then 
APC = C/Y
        = 2,600/3,000
        = 26/30 
        = 0.86 

Therefore, APC is 0.86. 
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

Psychological law of consumption states that "as income goes on increasing, the consumption also increases but at a rate less than increase in income.

  1. True

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

True. 

J.M Keynes explained the relationship between Consumption(C) and Income(Y) through the psychological law of consumption that stated, "as income goes on increasing, the consumption also increases but at a rate less than increase in income because there is always a part of income which is saved for future uncertainties". 

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 Average Propensity to Consume is denoted as _____________.

  1. $APC=\dfrac{C}{I}$
  2. $APC=\dfrac{S}{Y}$
  3. $APC=\dfrac{I}{Y}$
  4. $APC=\dfrac{C}{Y}$
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. 
Average propensity to consume = C/Y 
where C is the consumption and Y is the 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

_______________ explains the relationship between Consumption (C) and Income (Y) in terms of the psychological law of consumption.

  1. Alfred Marshall

  2. J.M. Keynes

  3. Adam Smith

  4. Lionel Robbins
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

J.M Keynes explained the relationship between Consumption(C) and Income(Y) through the psychological law of consumption that stated, "as income goes on increasing, the consumption also increases but at a rate less than increase in income because there is always a part of income which is saved for future uncertainties". 

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.