12th Economics Book Back Question and Answer Tamil Medium & English Medium
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12th Economics Book Back Question and Answer Tamil Medium & English Medium
Chapter 4 Consumption and Investment Functions
Introduction
In the second chapter we have seen the concept of national income, its measurement, importance and difficulties. The present chapter deals with consumption function and the investment function which play a vital role in influencing national income.The primary macroeconomic objective is acceleration of growth of national income. We have already seen that national income comprises of consumption goods (C) and investment (I) goods. There is close correlation between investment and national income. The multiplier refers to the change in national income resulting from change in investment. The value of multiplier itself depends on consumption function or marginal propensity to consume. The consumption function is the relationship between consumption expenditure and the national income. The unspent portion of national income is called saving which becomes investment and thereby capital. The relationship between consumption expenditure and the capital expenditure is explained by the principle of accelerator. All these variables are closely interconnected. In this chapter one can learn the consumption function, psychological law of consumption, investment function, multiplier, accelerator and super multiplier.
1. The average propensity to consume is
measured by
a) C/Y
b) CxY
c) Y/C
d) C+Y
2. An increase in the marginal propensity
to consume will:
a) Lead to consumption function
becoming steeper
b) Shift the consumption function
upwards
c) Shift the consumption function
downwards
d) Shift savings function upwards
3. If the Keynesian consumption function
is C=10+0.8 Y then, if disposable
income is Rs 1000, what is amount of
total consumption?
a) ₹ 0.8
b) ₹ 800
c) ₹ 810
d) ₹ 0.81
4. If the Keynesian consumption function
is C=10+0.8Y then, when disposable
income is Rs 100, what is the marginal
propensity to consume?
a) ₹ 0.8
b) ₹ 800
c) ₹ 810
d) ₹ 0.81
5. If the Keynesian consumption function
is C=10+0.8 Y then, and disposable
income is 100, what is the average
propensity to consume?
a) ₹ 0.8
b) ₹ 800
c) ₹ 810
d) ₹0.9
6. As national income increases
a) The APC falls and gets nearer in
value to the MPC.
b) The APC increases and diverges in
value from the MPC.
c) The APC stays constant
d) The APC always approaches infinity.
7. As increase in consumption at any given
level of income is likely to lead
a) Higher aggregate demand
b) An increase in exports
c)A fall in taxation revenue
d) A decrease in import spending
8. Lower interest rates are likely to :
a) Decrease in consumption
b) increase cost of borrowing
c) Encourage saving
d) increase borrowing and spinterest
9. The MPC is equal to :
a) Total spending / total consumption
b) Total consumption/total income
c) Change in consumption /change in
income
d) none of the above.
10. The relationship between total
spending on consumption and the total
income is the ___________________
a) Consumption function
b) Savings function
c) Investment function
d) aggregate demand function
11. The sum of the MPC and MPS is
_______
a)1
b) 2
c) 0.1
d) 1.1
12. As income increases, consumption
will _________
a)fall
b) not change
c) fluctuate
d) increase
13. When investment is assumed
autonomous the slope of the AD
schedule is determined by the _____
a) marginal propensity to invest
b) disposable income
c) marginal propensity to consume
d) average propensity to consume
14. The multiplier tells us how much
__________ changes after a shift in
_____
a) Consumption , income
b) investment, output
c) savings, investment
d) output, aggregate demand
15. The multiplier is calculated as
a) 1/(1-MPC)
b) 1/MPS
c) 1/MPC
d) a and b
16. It the MPC is 0.5, the multiplier is
____________
a) 2
b)1/2
c) 0.2
d) 20
17. In an open economy import _________
the value of the multiplier
a) Reduces
b) increase
c) does not change
d) changes
18. According to Keynes, investment is a
function of the MEC and _____
a) Demand
b) Supply
c) Income
d) Rate of interest
19. The term super multiplier was first
used by
a) J.R.Hicks
b) R.G.D. Allen
c) Kahn
d) Keynes
20. The term MEC was introduced by
a) Adam Smith
b) J.M. Keynes
c) Ricardo
d) Malthus
Part-B
Answer the following questions in one or two sentences.
21. What is consumption function?
22. What do you mean by propensity to consume?
23. Define average propensity to consume (APC).
24. Define marginal propensity to consume (MPC).
25. What do you mean by propensity to save?
26. Define average propensity to save (APS).
27. Define Marginal Propensity to Save (MPS).
28. Define Multiplier.
29. Define Accelerator.
Part C
Answer the following questions in one paragraph
30. State the propositions of Keynes’s Psychological Law of Consumption
31. Differentiate autonomous and induced investment.
32. Explain any three subjective and objective factors influencing the
consumption function.
33. Mention the differences between accelerator and multiplier effect
34. State the concept of super multiplier.
35. Specify the limitations of the multiplier.
Part D
Answer the following questions in a page
36. Explain Keynes psychological law of consumption function with diagram.
37. Briefly explain the subjective and objective factors of consumption function?
38. Illustrate the working of Multiplier.
39. Explain the operation of the Accelerator.
40. What are the differences between MEC and MEI