Chapter 4: Consumption and Investment Functions — Online MCQ Test
ECONOMICS · CLASS 12th · Tamil Nadu State Board
Practice Chapter 4: Consumption and Investment Functions with a free chapter-wise online MCQ test.
This chapter covers: Covers how consumption and saving behavior is explained through concepts like the propensity to consume and save and how these feed into the multiplier effect on national income. I....
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Chapter 4: Consumption and Investment Functions — Important Questions & Answers
What is the average propensity to consume (APC)?
- A. Consumption divided by income
- B. Income divided by consumption
- C. Saving divided by income
- D. Consumption minus saving
Answer: A. Consumption divided by income
APC is defined as the ratio of total consumption to total income. It shows the proportion of income spent on consumption.
APC is defined as the ratio of total consumption to total income. It shows the proportion of income spent on consumption.
Which of the following is the correct formula for marginal propensity to save (MPS)?
- A. Change in consumption / Change in income
- B. Change in saving / Change in income
- C. Saving / Consumption
- D. Income / Saving
Answer: B. Change in saving / Change in income
MPS measures the change in saving due to a change in income. It is expressed as ΔS/ΔY.
MPS measures the change in saving due to a change in income. It is expressed as ΔS/ΔY.
If marginal propensity to consume (MPC) is 0.8, what is the marginal propensity to save (MPS)?
- A. 0.2
- B. 0.8
- C. 1.2
- D. 0.5
Answer: A. 0.2
Since MPC + MPS = 1, MPS = 1 - 0.8 = 0.2. This is a direct application of the basic consumption-savings relationship.
Since MPC + MPS = 1, MPS = 1 - 0.8 = 0.2. This is a direct application of the basic consumption-savings relationship.
Which of the following correctly distinguishes marginal efficiency of capital (MEC) from the rate of interest?
- A. MEC is the cost of borrowing, while interest is the expected return
- B. MEC is the expected rate of return from an investment, while interest is the cost of funds
- C. Both mean the same thing in Keynesian theory
- D. MEC is always lower than interest
Answer: B. MEC is the expected rate of return from an investment, while interest is the cost of funds
MEC refers to the expected profitability of capital, whereas the rate of interest is the cost of obtaining funds for investment. Firms invest when MEC exceeds the interest rate.
MEC refers to the expected profitability of capital, whereas the rate of interest is the cost of obtaining funds for investment. Firms invest when MEC exceeds the interest rate.
If autonomous consumption is ₹20,000 and disposable income is zero, which of the following is true?
- A. Saving must be ₹20,000
- B. Consumption will be zero because income is zero
- C. Consumption can still occur through dissaving or borrowing
- D. MPC must be greater than 1
Answer: C. Consumption can still occur through dissaving or borrowing
Autonomous consumption is consumption when income is zero, often financed by past savings or borrowing. This is a standard Keynesian idea.
Autonomous consumption is consumption when income is zero, often financed by past savings or borrowing. This is a standard Keynesian idea.