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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
Calculate APC and APS from the following schedule : `{:(,"Income" (Y),,100,,200,,300),(,"Consumption" (C),,80,,120,,180):}` |
| Answer» `{:(,"Income"(Y),"Consumption"(C),"Saving" (S),"APC","APS"),(,(₹),(₹),S=Y-C(₹),CdivY=APC,SdivY=APS),(,100,80,20,80div100=0.80,20div100=0.20),(,200,120,80,120div200=0.60,80div200=0.40),(,300,180,120,180div300=0.60,120div300=0.40):}` | |
| 2. |
At zero level of income, consuption isA. zeroB. positiveC. negativeD. all of these |
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Answer» Correct Answer - B even at 0 level of income , there is always some positive consumption in an economy which is known as autonomous consumption. |
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| 3. |
If APC of an economy is 0.8, what should be the savings when an income level is 4000 crore? |
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Answer» We know, APC+APS=1 , APC=0.8 `therefore APS=1-0.8=0.2` `"APS"=("Savings")/("Income") or 0.2=("Saving")/(4000)` Savings =800 crore. |
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| 4. |
Find savings of autonomous consumption is 60 and MPC=0.5 at 5000 level of income |
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Answer» `S=-bar(C)+(1-b)Y` `=-60+(1-0.5)5000` `=-60+0.5xx5000=-60+2500-2440` |
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| 5. |
Find consumption (C ) if b=0.8 and income (Y) is 200 and `bar(C )` =100 |
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Answer» `C=bar(C)+bY` `C=1000+0.8 "of"200=100+(8)/(10)xx200=100+16=260` |
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| 6. |
MPC is the slope ofA. saving functionB. consumption functionC. cost functionD. all of these |
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Answer» Correct Answer - B MPC measures the change in consumption when there is an increase in income. Hence, it is a slope of consumption function. |
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| 7. |
Complete the following table: |
| Answer» Marginal Propensity to save : - , 0.30, 0.30, 0.30, Averagae Propensity to Consume : - 1.00, 0.85, 0.80 | |
| 8. |
Using the equation of consumption function: C = `barc` + b(Y), calculate consumption expenditure at the income level of ₹ 500 crores, if autonomous consumption is ₹ 40 crores and 40% of additional income is saved. |
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Answer» Correct Answer - Consumption Expenditure (C ) = ₹ 340 crores Given: MPS = 0.4 `" "` (as 40% of additional income is saved) MPC or b = 1- MPS = 1-0.4 = 0.6 Given: Autonomous Consumption `(barc)` = ₹ 40 crores, Income (Y) = ₹ 500 crores Putting the values of b, `barc`and Y in the consumption function, we get: C = 40+0.6`xx`500= ₹ 340 crores |
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| 9. |
(i) The disposable income (Y) is ₹ 1200 crores and consumption expenditure ( C) is ₹ 800 crores. Calculate the APC. If saving is ₹ 500, out of an income of ₹ 5,000, how much is the APS ? (iii) If disposable income is ₹ 1,000 and consumption expenditure is ₹ 750, find out average propensity to save. (iv) If income is ₹ 100, calculate APC. (v) When incomes rises from ₹ 1,000 to ₹ 1,100, saving rise by ₹ 30. Find out MPS and MPC. |
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Answer» (i) APC = `("Consumption (C)")/("Income (Y)")=(800)/(1,200)` = 0.67 (ii) APS = `("Saving (S)")/("Income (Y)")=(500)/(5,000)` = 0.10 (iii) APS = `("Consumption (C)")/("Income (Y)")`=`(500-100)/(500)` = 0.80 (v) MPS = `("Change in Saving"(DeltaS))/("Change in Income"(DeltaY))=(30)/(1,100-1,000)` = 0.30 |
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| 10. |
Complete the following table : |
| Answer» Saving:- 30, -5, 20, 45, Average Propensity to Consume = -, 1.05, 0.90, 0.85, | |
| 11. |
With the help of saving function: S = -20+ 0.3 (Y), calculate consumption expenditure at the income level of ₹1,000 crores. |
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Answer» Correct Answer - Consumption Expenditure ( C) = ₹ 720 crores We know, Saving function is expressed as: S= - `barc` + (1-b)Y It means: - 20 indicates that autonomous consumption (`barc`) = ₹ 20 crores `" "`(Assuming value of `(barc)` in ₹ crores ) |
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| 12. |
If the total incomes from ₹ 5,000 crores to ₹ 6,000 crores and saving increases from ₹ 1,000 crores to ₹ 1,500 crores, calculate MPC. |
| Answer» Correct Answer - `0.50` | |
| 13. |
If MPC is one-third of MPS and consumption at zero level of national income is ₹ 40 crores, derive the consumption and saving function. |
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Answer» Given : MPC = `(1)/(3)` MPS `" "…(1)` We know : MPC + MPS = 1 `" "…(2)` Putting value of MPC from (1) in (2), we get: `(1)/(3)` MPS + MPS = 1 MPS = `(3)/(4)` = 0.75 MPC = `(1)/(3)xx0.75`=0.25`" "`{Altemately : MPC = 1- MPS = 1-0.75=0.25} Consumption Function is given as : C = `barc` + b(Y) Autonomous Consumption (`barc`) = ₹ 40 crores and b or MPC = 0.25 Putting the values of b and `barc` in the consumption function, we get: C= 40+0.25 (Y) Saving Function is given as: S = - `barc` + (1-b)Y Putting the values of (1-b) or MPS and - `barc`, we get : S = -40+0.75(Y) |
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| 14. |
If MPS is 0.3 and the income increases from ₹ 6,000 crores to ₹ 9,000 crores, what will be the additional consumption in the economy ? |
| Answer» Correct Answer - ₹ 2,100 crores | |
| 15. |
If MPC is four times MPS and consumption at zero level of income is ₹ 70 crores, derive the consumption function . |
| Answer» Correct Answer - C=70+0.80Y | |
| 16. |
If National income is ₹ 50 crore and Saving ₹ 5 crore, find out average propensity to consume. When income rises to ₹ 60 crore and saving ₹ 9 crores, what will be the average propensity to consume and the marginal propensity to save ? |
| Answer» Correct Answer - 0.90, 0.85, 0.40 | |
| 17. |
The saving curve of an economy makes a negative intercept of ₹ 50 crores and 20 % of additional income is saved. Derive the saving and consumption function. |
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Answer» Given: Autonomous Consumption `(barc)` = ₹ 50 crores `" "` {Negative intercept of saving curve indicates `barc`} MPS = 0.2 `" "`(as 20% of additional income is saved) Saving Function is giving as: S= -`barc` + (1-b)Y Putting the values of (1-b) or MPS and - `barc`, we get: S= -50 + 0.2 (Y) Consumption Function is given as: C= `barc` + b(Y) b or MPC = 1 - MPS = 1-0.2= 0.8 Putting the values of b and (`barc`) in the consumption function, we get: C= 50 + 0.8 (Y) |
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| 18. |
Complete the followig table : |
| Answer» Marginal Propensity to Consume: - 0.80, 0.80, 0.40, 0.40, Average Propensity to Consume: - 1.20, 1, 0.80, 0.70 | |
| 19. |
Complete the following table : |
| Answer» Income : 0, 100, 200, 300, 400, Consumption Expenditure : 80, 140, 200, 24, 260, Marginal Propensity to save: - 0.4, 0.4, 0.6, 0.8, Average Propensity to Save:- -0.4, 0, 0.20, 0.35 | |
| 20. |
Complete the following table: |
| Answer» Income : 150, 250, 350, 450, Marginal propensity to consume : - 0.75, 0.75, 0.75 | |
| 21. |
Complete the following table : |
| Answer» Average propensity to consume : - 1.4, 1, 0.8, 0.75, Marginal propensity to consume : - 0.6, 0.6, 0.4, 0.6 | |
| 22. |
The break-even point for an economy occurs at the income level of ₹ 500 crores If marginal propensity to consume is 0.6, determine: (i) Autonomous consumption, (ii) Saving function, (iii) Level of income when saving is ₹ 600 crores. |
| Answer» (i) ₹ 200 crores, (ii) -200+0.4 (Y), (iii) ₹ 2,000 crores | |
| 23. |
The consumption function for and economy is given as: C = 200 + 0.8Y. (i) Determine the value of MPC and MPS, (ii) Autonomous Consumption, (iii) Derive the corresponding saving function, (iv) Calculate consumption at the income levels of ₹ 3,000 crores and ₹ 5,000 crores. (v) Determine the break-even level of income. |
| Answer» (i) MPC = 0.8, MPS = 0.2, (ii) Autnomous Consumption= ₹ 200 crores (iii) S=-200+0.20Y,(iv) ₹ 2,600 crores and ₹ 4,200 crores, (v) ₹ 1,000 crores | |
| 24. |
If Consumption Function is given by : C= 30+0.4Y, then determine: (i) Savings at zero level of income, (ii) MPC, (iii) MPS, (iv) Break-even level of income, (v) Saving Function. |
| Answer» (i)- 30, (ii) 0.4, (iii) 0.6, (iv) 50, (v)S= -30+0.6Y | |
| 25. |
If a consumption function of a hypothetical economy is given as: C = 100 + 0.6 Y, then (i) What will be the values of marginal propensity to consume and marginal propensity to save for the economy ? (ii) Write the corresponding saving function. |
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Answer» (i) C = 100 + 0.6 Y (given) So, MPC = 0.6 MPS = 1 - MPC = 1-0.6= 0.4 (ii) S = -C+(1-b)Y S = -100+0.4Y |
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| 26. |
If MPS=0.4, find MPC |
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Answer» Since, MPC+MPS=1 0.4+MPC=1 MPC=1-0.4=0.6 |
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| 27. |
If MPC=0.25, find MPS. |
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Answer» Since, MPC+MPS=1 0.25+MPS=1 MPS=1-0.25=0.75 |
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| 28. |
If APS=0.75 find APC |
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Answer» APC+APS=1 APC+0.75=1 APC=1-0.75=0.25 |
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| 29. |
On the basis of given diagram, answer the following questions: (i) What is the value of autonomous consumption ? What is the break-even level of income or at what level of income saving is zero ? (iii) How much is APC corresponding to point E ? (iv) If MPC = 0.6, determine the consumption and saving function. |
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Answer» (i) Consumption curve makes an itercept of ₹ 40 crores on the Y-axis. So, Autonomous Consumption (`barc`) = ₹ 40 crores. (ii) Break-even point occurs when Consumption = Income (or Saving = 0) So, Break-even level of income = ₹ 100 crores. (iii) At point E, C = Y = ₹ 100 crores. So, APC = `("Consumption(C)")/("Income(Y)")=(100)/(100)` = 1 Consumption Function is given as: C= `barc` +b(Y) Autonomous Consumption (`barc`) = ₹ 40 crores and b or MPC = 0.6 Putting value of b and (`barc`) in consumption function, we get: C= 40+0.6Y Saving Function in given as: S= -`barc`+(1-b)Y (1-b) or MPS = 1-MPC=1-0.6=0.4 Putting values of (1-b) or MPS and -(`barc`), we get: S=-40+0.4Y |
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| 30. |
If the saving function is S = -20 + 0.3Y, then what will be the value of MPC ? |
| Answer» 0.3 indicates that MPS = 0.3. So, MPC = 1-MPS = 1-0.30= 0.70 | |
| 31. |
Estimate the value of Aggregate Demand in an economy if: `{:(,"(a)","Autonomous Investment (I)",,=100"crores"),(,"(b)","Marginal Propensity to Save",,=0.2),(,"(c)","Level of Income (Y)",,=4","000"crores"),(,"(d)","Autonomous Consumption Expenditure"(barc),,=50"crores"):}` |
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Answer» Aggregate Demand (AD) function is given as: AD = C + 1 or, AD = {`barc` + b(Y)}+I `" "`(as C= `barc`+ b(Y)) `barc` = 50 (Given) b or MPC = 1-MPS = 1-0.2 = 0.8 Substituting the values of `barc` and b in AD function, we get: AD = {50 + 0.8(4,000)} + 100= ₹ 3,350 crores Aggregate Demand = ₹ 3,350 crores |
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| 32. |
Give meaning of (i) Involuntary unemployment. (ii) Full employment. (iii) Under-employment. Or Explain briefly the meaning of involuntary unemployment and full employment. |
| Answer» (i) Involuntary unemployment :the condition in which virtually all who are able and willing to work are employed(ii) Full - employment : the condition in which virtually all who are able and willing to work are employed | |
| 33. |
Which of the following cannot have a negative value ? Give reasons. (i) Average propensity to save (ii) Marginal propensity to save Hint : (i) APS can have a negative value because at very low level of income, there is dissaving, (ii) MPS cannot have a negative value as it is the ratio of `DeltaSandDeltaYandDeltaS` can never be negative. |
| Answer» APS can be negative because at very low level of income, there is dissaving i.e when income is less than consumption.MPS can never be negative because it tells the ratio of change in savings to change in income. | |
| 34. |
Explain the relationship between average propensity to consume and average propensity to save. Which of these can have a negative value and when ? |
| Answer» APC refers to ratio of absolute consumption to absolute incomeAPC= C/YAPS refers to ratio of absolute savings to absolute income.APS= S/YOut of these 2, APS can have negative value when income is less than consumption. | |
| 35. |
Can the value of average propensity to save be negative ? If yes, when ? |
| Answer» Yes, value of average propensity to save can be negative when consumption is more than national income, i.e. before break-even point. | |
| 36. |
How much is the marginal propensity to consume in an economy in which MPS is 0.2 ? |
| Answer» MPC = 1- MPS = 1-0.2=0.80 | |
| 37. |
Slope of Consumption curve is indicated by APC . |
| Answer» False. : Slope of Consumption curve is indicated by MPC (i.e. `DeltaC//DeltaY`) and not by APC (i.e. C/Y). | |
| 38. |
If APC is 0.4 then find APS. |
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Answer» APC+APS=1 0.4+APS=1 APS=1-0.4=0.6 |
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| 39. |
If MPC is 0.75, what will be the MPS ? |
| Answer» MPS = 1- MPC = 1- 0.75 =0.25 | |
| 40. |
If the value of average propensity to consume is given as 0.75, the value of average propensity to save would be _____. |
| Answer» Average Propensity to Save (APS)=1 - Average Propensity to Consume (APC) = 1- 0.75 = 0.25. | |
| 41. |
What is the difference between matginal propensity to consume and marginal propensity to save ? What is the relation between the two ? |
| Answer» MPC refers to ratio of change in consumption to change in income.whereas MPS refers to ratio of change in savings to change in income.Relationship between MPC and MPS-MPC+MPS=1 | |
| 42. |
Component of aggregae demandA. Foreign exchangeB. intereast rateC. consumptionD. none of these |
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Answer» Correct Answer - C CONSUMPTION is the component of AD |
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| 43. |
(a) What is autonomous investment ? Explain diagrammatically. (b) Why does government spend on autonomous investment ? |
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Answer» . (a) Refer to section 7.10 of Chapter 7. Autonomous investments are incurred by government to provide strong infrastructural base for the economy. According to its fiscal policy, the government spends on public utilities like on railways, roads, electricity etc. irrespective of level of income in the economy. |
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| 44. |
APC can be difined as the fraction of change in income that is consumed. |
| Answer» False. : It is defined as the fraction of specific level of total income that is consumed. | |
| 45. |
Its value can be greater than one:A. MPCB. MPSC. APSD. APC |
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Answer» Correct Answer - D at initial levels of income , consumption is greater than income. thus , APC>1 |
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| 46. |
Value of APS is negative whenA. `DeltaY lt DeltaC`B. `C gt Y`C. S=YD. none of these |
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Answer» Correct Answer - B At initial levels, consumption is greater than income and thus savings are negative . |
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| 47. |
Distinguish between average propensity to consume and marginal propensity to consume. The value fo which of these two can be greater than one and when ? |
| Answer» 1. APC refers to ratio of absolute consumption to absolute income at a particular point of time whereas MPC refers to ratio of change in consumption to change in income.2. Value of APC can be greater than one when consumption is greater than income. | |
| 48. |
Explain the components of the equation `C=bar(C )+bY` |
| Answer» Consumption function formulaC = cbar + b YdThe Keynesian consumption function expresses the level of consumer spending depending on three factors.Yd = disposable income (income after government intervention – e.g. benefits, and taxes)a or c bar = autonomous consumption (consumption when income is zero. (e.g. even with no income, you may borrow to be able to buy food))b = marginal propensity to consume (the % of extra income that is spent). Also known as induced consumption. | |
| 49. |
On the basis of consumption function: C = 120 + 0.40 Y, answer the following questions: (i) Derive the saving function. (ii) Determine the saving at the income level of ₹ 500 crores. (iii) At what level of income, saving becomes zero ? |
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Answer» (i) We know, Consumption function is expressed as: C= `barc` + b(Y) It means: 120 is the autonomous consumption (`barc`) and 0.40 indicates MPC or b Saving Function is given as: S = - `barc` + (1+b)Y MPS or (1-b) = 1 - MPC = 1 -0.40 = 0.60 Putting the values of (1-b) or MPS and - `barc`, we get : S = -120+0.60(Y) (ii) For saving at income (Y) of ₹ 500 crores, putting the values of (1-b), `barc` and Y in the saving function, we get : S= -120 + 0.60 `xx` 500 = ₹ 180 crores (iii) Saving will become zero at break- even poit, i.e. when Y=C. Replacing C with Y in the consumption function to determine the break-even point. Y = 120 + 0.40 Y 0.6 Y = 120 Y = 200 Saving will become zero at income level of ₹ 200 crores |
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| 50. |
The consumption function is given as C = 40+0.6Y. Derive saving function. |
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Answer» We know, Income (Y) = Consumption ( C) + Saving (S). It means, S= Y-C `" "…(i)` Given: C= 40+0.6Y `" "…(ii)` Putting value of C from (ii) in (i), we get: S=Y-(40+0.6Y) S=Y-40-0.6Y S=-40+0.4Y |
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