Tag: production, consumption, saving and economic units

Questions Related to production, consumption, saving and economic units

AD curve is represented by ________ curve in the income determination analysis.

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

  1. Consumption + Saving + Investment

  2. Consumption + Saving

  3. Saving + Investment

  4. Consumption + Investment

Show answer
Correct Option: D
Explanation:

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

The Ad curve in income determination analysis represents a two sector economy which only includes the expenditure made by the consumer sector and the producer sector.
Therefore, aggregate demand = consumption + investment. 

If saving function of an economy is given as: S = - 40 + 0.4 M, then MPC is ___________________.

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

  1. 1

  2. 0.4

  3. 0.8

  4. None of these

Show answer
Correct Option: A
Explanation:

Saving function is S= s + M(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and M= income. Comparing it to S=−40+0.4(M), MPS= 0.4.


We know that, 

MPS + MPC = 1 

=> MPC = 1 - MPS 

=> MPC = 1 - 0.4 

=> MPC = 0.6 


Therefore, MPC is 0.6. 

Which among the following is the other term used for 'saving function'?

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

  1. Income function

  2. Propensity to save

  3. Reverse consumption propensity

  4. None of the above

Show answer
Correct Option: B
Explanation:

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

S= s + Y(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and Y= income.

It defines the propensity to save in the economy at every level of income. 

When the savings curve lies below the x-axis, the consumption is higher than the income leading to dissaving.

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

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Average Propensity to save defines the amount of savings in every 1 rupee of income for all level of income which can be less than zero at income levels which are lower than the break-even point where savings lies below the x-axis indicating that consumption is greater than income that leads to dissavings in the economy. 

___________ is the ratio of saving to income.

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

  1. Marginal propensity to save

  2. Average propensity to save

  3. Total propensity to save

  4. Income propensity to save

Show answer
Correct Option: B
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. It is expressed as the ration of saving to income in an economy. 

Average propensity to save = S/Y where S is the savings and Y is the income in the economy. 

Which among the following is a type of propensity to save?

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

  1. Marginal propensity to save

  2. Average propensity to save

  3. Total propensity to save

  4. Both A & B

Show answer
Correct Option: D
Explanation:

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.

Marginal propensity to save = ΔS/ΔY where ΔS is the Change in savings and ΔY is the change in income in the economy. 

APS refers to Average Propensity to save which defines the amount of savings in every 1 rupee of income for all level of income. 

Average propensity to save = S/Y where S is the savings and Y is the income in the economy. 

Saving is a function of ___________.

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

  1. income

  2. aggregate demand

  3. export

  4. income inequality

Show answer
Correct Option: A
Explanation:

Savings refers to the proportion which is not utilized at present and is saved for future. It is a function of income where,

Saving function is S= s + Y(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and Y= income. 

The distance between the line of consumption and the income curve after the intersection of both the curves is termed as __________.

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

  1. investment

  2. savings

  3. dissavings

  4. none of the above

Show answer
Correct Option: B
Explanation:

Savings refers to the amount of the income which is not spend on the consumption of the commodities. It is the distance between the consumption curve and the income curve after the intersection. 

Some of the motives that affect a persons consumption decision are ________________.

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

  1. Motive of Precaution

  2. Motive of Improvement

  3. Motive of Independence

  4. All of the above

Show answer
Correct Option: D
Explanation:
Consumption decision refers to the decision of allocating a proportion of one's income in the consumption of goods and services for living. 
Some of the motives that affect a persons consumption decision are: 
1. Motive of precaution from future uncertainties like high prices.
2. Motive of improvement of lifestyle and standard of living. 
3. Motive of independence. 

According to Keynes, consumption function is only affected by objective factors.

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

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

False. 

According to Keynes, 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. It is affected by both objective and subjective factors.