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51.

MPC is zero when:A. `DeltaC lt DeltaY`B. `DeltaS = DeltaY`C. `DeltaS lt DeltaY`D. none of these

Answer» Correct Answer - B
when all of the additional income is saved , then none is left for consumption.
Discussion
52.

Value of average propensity to save can never be less than zero. OR Average propensity to save is always greater than zero. OR Average propensity to save can never be negative.

Answer» False. : APS can be negative at low level of income when consumption expenditure is greater than income.
Discussion
53.

The consumption function of an economy is given as: C=60+0.6Y. For the given consumption function, calculate the break-even level of income.

Answer» We know, at break-even point, Consumption ( C) = Income (Y).
Putting Y = C in the consumption function (c=60+0.6Y), we get: Y = 60+0.6Y
Y-0.6 Y= 60
0.4 Y = 60
Y = Break-even level of income = 150
Discussion
54.

Calculate MPC and MPS from the following schedule:

Answer» MPC:- 0.75, 0.75, 0.75, 0.90, MPS:- 0.25, 0.25, 0.25, 0.10
Discussion
55.

If households save ₹ 500 crores out of an additional income of ₹ 5,000 crores, then calculates MPC.

Answer» Correct Answer - `0.90`
Discussion
56.

If national income is ₹ 90 crore and Consumption expenditure ₹ 81 crore, find out average propensity to save. When income rises to ₹ 90 crore and Consumption expenditure ₹ 81 crore, find out average propensity to save.when income rises to ₹ 100 crore and consumption expenditure to ₹ 88 crore. What will be the marginal propensity to consume and marginal propensity to save ?

Answer» Correct Answer - 0.10, 0.70, 0.30
Discussion
57.

The break-even level of income for an economy is given to be ₹ 10,000 crores. If the economy saves 20 per cent of additional income, then calculate the value of autonomous consumption.

Answer» Given: MPS = 0.2 `" "`(as 20% of additional income is saved)
MPC or b= 1-MPS= 1-0.2=0.8
Consumption ( C) = Income (Y) at Break-even level of income
So, Consumption ( C) = 10,000
Consumption Function is expressed as: C = `barc` +b(Y)
Putting the values of C, b and Y, we get: 10,000 = `barc` +0.8 (10,000)
Autonomous Consumption (`barc`) = ₹ 2,000 crores
Discussion
58.

The consumption function for an economy is : C = 20 + 0.8Y (assuming amount in ₹ crores). Determine the level of income when average propensity to consume will be one.

Answer» Average propensity to consume (APC) is 1 at break-even point, i.e. when consumption ( C) = Income (Y)
Putting C = Y in the consumption function, we get :
Y = 20+ 0.8Y
Y= 100
It means, APC will be 1 when the level of income is ₹ 100 crores.
Note: Proof: Consumption at income of ₹ 100 crores will be: C = 20+0.8`xx`100=100.
APC = `("Consumption(C)")/("Income(Y)")=(100)/(100)` = 1
Discussion
59.

The saving curve makes an intercept of ₹ 40 crores on the negative Y-axis. If consumers spend 60% of additional income, then determine: (i) Saving Function, (ii) Consumption Function, (iii) Break-even level of income.

Answer» (i) S = -40+0.40Y, (ii) C= 40+0.60Y, (iii) ₹ 100 crores
Discussion
60.

The saving function for an economy is given as: S = -120 + 0.4(Y). Determine: (i) Consumption function, (ii) Consumption at income level of ₹ 600 crores, (iii) Break-even level of income.

Answer» (i) C= 120+ 0.60(Y), (ii) ₹ 480 crores, (iii) ₹ 300 crores
Discussion
61.

The consumption function of an economy is given as: C = 40+0.7Y. Calculate the saving at the income level of ₹ 2,200 crores

Answer» Saving = ₹ 620 crores
Discussion
62.

The consumption curve makes an intercept of ₹ 60 crores on the Y-axis. If MPC:MPS can be expressed as 1:3, then derive the saving and consumption function. Also determine the level of income, when saving becomes zero ?

Answer» Saving Function: S= -60+0.75 (Y), Consumption Function: C= 60+0.25(Y), Saving will become
Discussion
63.

Using the consumption function : C = `barc` +b(Y), calculate saving at income of ₹ 2,000 crores, if autonomous consumption is ₹ 150 crores and 40% of additional income is consumed.

Answer» Saving = ₹ 1,050 crores
Discussion
64.

The consumption expenditure and investment demand are ₹ 600 crores and ₹ 300 crores respectively, when income is ₹ 1,000 crores. Calculate : (i) AD, (ii) AS (iii) Saving.

Answer» Correct Answer - (i) AD = ₹ 900 crores; (ii) AS = ₹ 1,000 crores; (iii)Saving = ₹ 400 crores.
(i) AD = Consumption expenditure ( C) + Investment demand (I)
AD = 600+300 = ₹ 900 crores.
(ii) We know, aggregate supply (AS) and national income (Y) mean one and the same thing.
So, AS = ₹ 1,000 crores.
Given AS = 1,000 and C=600
It means, Saving (S) = Y-C= ₹ 400 Crores `" "(becauseY=C+S)`
Discussion