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Determination of Income and Employment Test - 4

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Determination of Income and Employment Test - 4
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  • Question 1
    1 / -0

    The saving is negative at

    Solution

    S=Y-C 

    Putting, Y =0

    We have , S=0-C

    S=-C. So, at zero level of income, saving is negative

  • Question 2
    1 / -0

    If APC is 0.7 then APS will be

    Solution

    Given, APC=0.7

    APS=1-APC= 1-0.7= 0.3

  • Question 3
    1 / -0

    APC =

    Solution

    APC implies the ratio of income that is consumed and is given by total consumption divided by total income.

  • Question 4
    1 / -0

    The coefficient (1-b) measures the

    Solution

    See the figure below:

  • Question 5
    1 / -0

    The level of equilibrium income is also determined by

    Solution

    See the figure below, how income is determined through investment and saving

  • Question 6
    1 / -0

    In S= -a+ (1-b) Y, -a represents

    Solution

     Here, -a implies dissavings when level of income is zero

  • Question 7
    1 / -0

    APC+APS=

    Solution

    We know, APS=S/Y 

    APC=C/Y. Also, Y=C+S , because income is either consumed or saved.

     

    Now, C/Y+S/Y=C+S/Y=Y/Y=1.

     

  • Question 8
    1 / -0

    In a two sector economy Aggregate Demand equals

    Solution

    Because,there are only two sectors: households and firms.Households consume and firms invest.

  • Question 9
    1 / -0

    APC = 1 - APS. It is

    Solution

    Explanation:

    APS + APC = 1

    Or APC = 1 - APS. 

  • Question 10
    1 / -0

    APS = 1 + APC. It is

    Solution

    APS = 1 - APC , it implies that APS is always less than one. 

  • Question 11
    1 / -0

    The investment demand function is

    Solution

    Investment depends mainly on the rate of interest.As interest rate increases, investment decreases and vice versa.

  • Question 12
    1 / -0

    Autonomous consumption is assumed to be at

    Solution

    Autonomous consumption is independent of income.So, it takes place even when income is  zero. 

  • Question 13
    1 / -0

    The law of Psychological consumption states

    Solution

    People save a part of their income after having consumed a part of it. As per the law, all income is not consumed rather a part is saved.

  • Question 14
    1 / -0

    APS=

    Solution

    APS is defined as ratio of income that is saved out of total income.

  • Question 15
    1 / -0

    C= a+b(Y)

    Solution

    Consumption has two parts :induced consumption and autonomous consumption.In the function, a implies autonomous consumption and bY implies induced consumption.

  • Question 16
    1 / -0

    MPS = 1 + MPC. It is

    Solution

    Because, both MPC and MPS are less than 1.

  • Question 17
    1 / -0

    The level of equilibrium income is determined by

    Solution

    See the figure below:

  • Question 18
    1 / -0

    Multiplier tells us what will be the

    Solution

    Multiplier implies change in income as a result of change in investment, 

  • Question 19
    1 / -0

    MPC = 1 - MPS. It is

    Solution

    MPS + MPC = 1

    MPC = 1 - MPS

  • Question 20
    1 / -0

    If income is Rs 1000 and consumption expenditure is Rs 1200, APS will be

    Solution

    APC=C/Y=1200/1000=1.2

    Now, APS=1-APC

    APS=1-1.2=-0.2

  • Question 21
    1 / -0

    APC + APS should always be equal to 1

    Solution

    S/Y+C/Y=S+C/Y=Y/Y=1. (C+S=Y)

    It's because income can either be consumed or saved.

     

  • Question 22
    1 / -0

    MPC+MPS =

    Solution

  • Question 23
    1 / -0

    What is meant by investment

    Solution

    In economics, investment means the purchase of goods that are not consumed but , meant for creating further wealth.Capital goods are those goods used to produce consumer goods.So, investment is addition to the stock of capital.

  • Question 24
    1 / -0

    Consumption changes in the same direction as income. It is

    Solution

    Consumption is increasing function of income.

    C = f(Y). Implies as income increases, consumption increases.

     

  • Question 25
    1 / -0

    MPC + MPS should always be equal to 1

    Solution

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