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Question
Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. Marginal propensity to consume in such a case would be __________.
Options
0.8
0.4
0.2
0.6
Solution
Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. The marginal propensity to consume in such a case would be 0.6.
Explanation:
MPC = `(Delta"C")/(Delta"Y") = 600/(1,000) = 0.6`
RELATED QUESTIONS
Define marginal propensity to consume
An economy is in equilibrium. Calculate Marginal Propensity to Consume :
National income = 1000
Autonomous consumption expenditure = 200
Investment expenditure = 100
Find equilibrium national income:
Autonomous consumption expenditure = 120
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Investment expenditure = 1100
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Match the following Group ‘A’ with Group ‘B’:
| Group ‘A’ | Group ‘B’ | ||
| (a) | Giffen’s goods | (1) | Uses of commodities |
| (b) | Essential commodities | (2) | Keynes |
| (c) | Consumption | (3) | Primary function of bank |
| (d) | Consumption function | (4) | Inferior goods |
| (e) | Accept deposits | (5) | Money lender |
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(6) | Inelastic demand | |
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(7) | Luxurious commodities |
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(8) | Dr. Marshall |
Explain the following concepts or give definitions.
Consumption
Write answers in ‘one’ or ‘two’ paras each :
Explain the concept of saving function.
Answer the following question.
What is meant by a propensity to consume?
Answer the following question.
In an economy, investment increased by 1,100 and as a result of it income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income?
If in an economy :
Change in initial Investment (∆I) = ₹ 700 crores
Marginal Propensity to Save (MPS) = 0.2
(a) Investment Multiplier (k)
(b) Change in final income (∆Y)
Which or is true?
If MPC is less than one, it follows that ______
The marginal physical product of a factor must be ______ when the total physical product is falling.
If in an economy, the value of investment multiplier is 4 and Autonomous Consumption is ₹ 30 Crore, the relevant consumption function would be :
The value of ______ can be greater than one.
APC can be greater than one, but MPC is always less than one. Give a reason to justify this phenomenon.
