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Determination of Income and Employment Test - 5

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Determination of Income and Employment Test - 5
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  • Question 1
    1 / -0

    At low level of income saving is negative.

    Solution

    First need of a person is cosumption, when consumption gets over or his basic wants are satisfied, he starts saving a part. But, saving being function of income, depends on the latter.So, when income level is low, cosumption is not over, and exceeds income.Thus , leads to negative saving.

  • Question 2
    1 / -0

    The slope of the saving function gives the

    Solution

    Slope of saving function implies rate of change of saving with respect to income.

  • Question 3
    1 / -0

    If MPC is less than one, it follows that

    Solution

    b stands for MPC. So, when b is less than 1,evidently 1-b is positive or 1-b>0

  • Question 4
    1 / -0

    If MPC =0.75, then MPS will be

    Solution

    MPS=1-MPC

    MPS= 1-0.75.(given)

    =0.25

  • Question 5
    1 / -0

    If the initial increase in the investment is Rs 1000 and MPC=0.8, the multiplier will be

    Solution

    K=1/1-mpc

    = 1/1-0.8

    =1/0.2

    =5

  • Question 6
    1 / -0

    The equation of saving function is

    Solution

    S = - a + (1 - b) Y

  • Question 7
    1 / -0

    The value of APS can be negative when

    Solution

    When consumption expenditure exceeds income,we have negative savings.

    Thus, APS being function of saving is negative.

  • Question 8
    1 / -0

    APC can also be greater than one when

    Solution

    APC=1-APS

    APC=1-(-APS)

    APC=1+APS

    So, APC>1 when APS is negative.

  • Question 9
    1 / -0

    Can the value of APS be negative?

    Solution

    Value of APS is negative when consumption expenditure is greater than income.For example , if income = Rs.1000, consumption = 1200.

    Then, saving = - 200. (negative saving)

    APS = - 200/1000= - 0.2

  • Question 10
    1 / -0

    APC can be greater than one when

    Solution

    APC=C/Y

    APC>1 when C>Y.

  • Question 11
    1 / -0

    In C = a + b (Y), ‘C’ denotes

    Solution

    It is a linear consumption function where 'C' represents consumption expenditure.

  • Question 12
    1 / -0

    Saving is an increasing function of income. It is

    Solution

    We call f(x) an increasing function of x, as x increases , f(x) also increases.

    We know that saving is a function of income.So, as income increases saving also increases.

    Thus, saving is an increasing function of income.

  • Question 13
    1 / -0

    What can be the minimum value of the investment multiplier?

    Solution

    Referring to the formula of investment multiplier below, if MPS=1, K=1. It means when consumption is zero or all income is saved, then there is no investment hence ,no change in income.

  • Question 14
    1 / -0

    The savings function derived from the consumption function c=a+bY is

    Solution

    S=-b+(1-b)Y, where 1-b implies marginal propensity to save.

  • Question 15
    1 / -0

    The average propensity to consume can be greater than one

    Solution

    Yes, APC can be greater than 1.It happens in such situations where the level of income is so low that cosumption is greater than income.

    APC=C/Y

    APC>1 when C>Y.

  • Question 16
    1 / -0

    Complete the flow ΔI→ΔY→ΔC→ _________

    Solution

  • Question 17
    1 / -0

    The formula of investment multiplier in terms of MPC is

    Solution

  • Question 18
    1 / -0

    The formula of investment multiplier in terms of MPS is

    Solution

  • Question 19
    1 / -0

    The Breakeven level of an economy is

    Solution

    See the figure below:

  • Question 20
    1 / -0

    The important factor influencing the propensity to consume in an economy is

    Solution

    Consumption is a function of income.

    C=f(Y) and APC=C/Y =f(Y)/Y.

  • Question 21
    1 / -0

    S = - a + (1 - b) Y is a

    Solution

  • Question 22
    1 / -0

    The value of the multiplier is determined by the

    Solution

    We know that multiplier is a function of MPC

  • Question 23
    1 / -0

    The important factor influencing the propensity to save in an economy is

    Solution

    Saving is a function of income.

    S=f(Y).

    So, APS=S/Y=f(Y)/Y.

  • Question 24
    1 / -0

    The investment multiplier is the ratio of

    Solution

  • Question 25
    1 / -0

    The coefficient (1-b) is also known as

    Solution

    Since, b is called MPC 

    MPS=1-MPC=1-b.

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