Sample Paper 2014-15 & 15-16 & 16-17
(Q1) Draw a straight line consumption curve. From it derive the saving curve. Explain the process of derivation on the diagram, show: (6M)
(a) The income level at which APC = 1
(b) The income level at which APS is negative
Ans: Diagram (a) gives a straight line consumption curve.
Consumption (c) + saving (s) = income (Y) (1M)
At zero level of income , there is an autonomous consumption of OC. The corresponding saving at this income level is (-)OC. The saving curve starts at (-)C. (1M)
At the income level OB , where the 45o reference line intersects the consumption curve, C=Y . At this income level , saving in equal to zero. Thus, we get point B on the x-axis of the saving curve. (1M)
By connecting (-) C and B , we get the saving curve.
- At income level OB , APC = 1 as APC = C/Y and at the income level C= Y. (1M)
A level of income at which APS is negative is any level of income less than OB
APS = S/Y and here saving is negative. (1M)
(Q2) If in an economy Saving function is given by S = (-) 50 + 0.2 Y and Y = Rs.2000 crores; consumption expenditure for the economy would be Rs.1,650 crores and the autonomous investment is Rs.50 crores and the marginal propensity to consume is 0.8. True or False?Justify your answer with proper calculations.
Ans: Yes all the given values are correct
(Q3) “Economists are generally concerned about the rising Marginal Propensity to Save (MPS) in an economy”. Explain why ? (3M)
Ans: Since the sum of MPC and MPS is unity any increase in Marginal Propensity to Save (MPS) would directly lead to decrease in Marginal Propensity to Consume (MPC) This means that may lead to lesser proportion of the additional income going to consumption which is a vital factor of Aggregate Demand/Expenditure. This may further lead to fall in equilibrium level of income in the economy.
(Q1) What is ‘aggregate demand’ in macroeconomics ? (1 M)
Ans: Value of final products the buyers are planning to buy during a given period at a given level of income.
(Q2) Give the meaning of (a) Autonomous Consumption (b) Full employment
(Q3) Which of these cannot have a negative value ? Give reasons (a) APS (b) MPS
Ans: APS when C > Y
(Q4) Derive a straight line saving curve using the following consumption function C = 20 + 0.6Y. Presuming the income levels to be Rs.100, Rs. 200 and Rs. 300 crores. Also calculate that level of income where consumption is equal to income. (6M)
Ans: C = 80 , 140 , 200 , S = 20 , 60 , 100 . Level where C = Y = 50
(Q5) Give the meaning of investment multiplier and aggregate supply and full employment.
Ans: (a) Investment Multiplier refers to the multiple increase in income, due to given increase in investment.
(b) Aggregate supply is the total quantity of goods and services planned to be produced in an economy during a period .
(c) Full Employment is a situation when all those who are able and willing to work get employment at the prevailing wage rate.
(Q1) What is aggregate demand ? State its components. (3M)
Ans: It refers to the value of final goods and services which all sectors of an economy are planning to buy during a year
(a) Private final consumption Exp. (C)
(b) Investment expenditure (I)
(c) Government final consumption exp. (G)
(d) Net export (X-M)
(Q2) Distinguish between marginal propensity to consume and average propensity to consume. Give a numerical example
(Q3) Given saving curve, derive consumption curve and state the steps used . Use diagram.
(Q1) Define marginal propensity to save . (1M)
Ans: It is ratio of change in saving to change in income
(Q2) Define marginal propensity to consume. (1M)
(Q3) Given a consumption curve, outline the steps required to be taken in deriving a saving curve from it. Use diagram. (6M)
Q4) Discuss the significance of 45 degree line in Keynesian Economics. (3) (SQP)
Ans: Aggregate Supply is obtained by adding consumption and saving schedules The straight line obtained which will originate from point of origin will form a 45 degree angle there by establishing the relation of Y = C+S At all points on 45 degree line, Consumption is equal to Income. It helps under the Keynesian Economic analysis . Since the two variables ( consumption / Aggregate Expenditure and Income) are measured in the same units , the 45-degree line has a slope of one and it bisects the 90 - degree angle formed by the two axes.
(Q5) State whether the following statements are true or false. Give valid reasons for your answers:
(a) Average propensity to save can never be negative.
Ans: False , at income levels which are lower than break-even point , Average propensity to save can be negative as there will be dissaving in the economy.
(Q6) Give the meaning of involuntary unemployment.
(Q7) What is the difference between marginal propensity to consume and marginal propensity to save ? What is the relation between the two ?
(Q8) Distinguish between average propensity to consume and average propensity to save.What is the relation between the two ?
(Q1) Why does consumption curve not start from the origin ? (1M)
(Q2) What is meant by aggregate demand ? State its components. (4M)
(Q3) Define aggregate supply. (1M)
(Q4) What is ex-Ante consumption ? Distinguish between autonomous consumption and induced consumption. (4M)
Ans: Ex-ante consumption refers to the consumption expenditure planned to be incurred during a period. Autonomous Consumption refers to the consumption expenditure which does not depend upon the level of income, i.e. the consumption at zero level of income. Whereas, Induced Consumption expenditure is directly determined by the level of income.(3M)
Previous C.B.S.E & N.C.E.R.T QUESTION ’S
(Q1) Name the principle component of aggregate demand
(Q2) What determines the size of investment ?
(Q3) When does autonomous investment becomes essential ?
(Q4) Exlplain the component of equation C = c + by
(Q5) How is AS measured or What are components of AS ?
(Q6) Distinguish between APC and MPC ? The value of which of these two can be greater than one and when ?
(Q7) Explain relationship between APS and MPS ? The value of which of these two can be negative and when ?
(Q8) Distinguish between APC and MPC with the help of numerical examples.
(Q9) Draw on a diagram a straight line saving curve for an economy. From it derive the consumption curve, explaning the method of derivation. Show a point on the consumption curve at which APC is equal to one ?
(Q10) Explain ‘consumption function’ with the help of a schedule and diagram. ,or
Explain ‘consumption function’ with the help of a schedule. Also record marginal propensity to consume in the schedule.
(Q11) Explain ‘saving function’ with the help of a schedule and diagram , or Explain ‘ saving function’ with the help of a schedule. Also record marginal propensity to save in the schedule.
(Q12) What is the relationship between marginal propensity to consume and marginal propensity to save ?
(Q13) Explain the distinction between voluntary and involuntary unemployment.What is the significance of these distinction
(Q14) Distinguish between propensity to consume and propensity to save, with the help of numerical examples.
(Q15) Outline the steps required to be taken in deriving the Consumption Curve from the given Saving Curve. Use diagram.
(Q16) What is ex-ante aggregate demand ?
(Q17) Giving reasons, state whether the following statements are true or false :
(a) Value of average propensity to save can never be less than zero.
(b) Sum of average propensity to consume and marginal propensity to consume is always equal to one
(a) Value of average propensity to save can never be greater than one
(b) Value of MPS can never be negative
Ans: F , F , T , T
(Q18) Given below is the consumption function in an economy : C = 100 + 0.5Y
With the help of a numerical example show that in this economy as income increases APC will decrease.
Ans: C = 150 , 200 , 250 , 300 , 350 , APC = 1.5 , 1,0.83 , 0.75 ,0.7
(Q19) Given that national income is Rs. 50 crore and Saving is 5 crore, find out average propensity to consume . When income rises to Rs. 60 crore and saving to 9 crore , what will be the average propensity to consume and the marginal propensity to save ?
Ans: 0.90; 0.85; 0.40
(Q20) Using the equation C = 20 + .9Y. Construct a schedule for consumption where income 200, 250, 300, 350, 400. Also derive saving function.
Ans: C = 200 , 245 , 290 , 335 , 380 , S = - 20 + 0.1Y
(Q21) If national disposable income is Rs.1000 cr and consumption exp. is Rs.750 cr , find APS?
(Q22) If disposable income is Rs.1200 cr and consumption exp. is Rs.800 cr, find APC ?
(Q23) Complete the following table : (3M)
Income Marginal Propensity Saving Average Propensity to Consume to Save
100 0.6 _ _ _ _ _ _
200 0.6 _ _ _ _ _ _
300 0.6 _ _ _ _ _ _
Ans: S = - 90 , - 50 , - 10 , 30 // APC = (-) 0.5 , (-) 0.05 , 0.1
(Q24) Income Consumption Marginal Average Propensity Propensity to Save to Consume
50 50 _ _ _ _ _ _
100 85 _ _ _ _ _ _
150 120 _ _ _ _ _ _
Ans: MPC = 0.3 // APC = - , 1 .0.85 , 0.8
(Q25) Income Marginal Propensity Saving Average Propensity to Consume to Consume
100 0.75 _ _ _ _ _ _
200 0.75 _ _ _ _ _ _
300 0.75 _ _ _ _ _ _
Ans: S = - 30 , - 5 , 20 ,45 // APC = - , 1.05 , 0.9 , 0.85
(Q26) Complete the following table : (4M)
Income Saving Marginal Propensity Average Propensity
to Consume to Consume
0 -20 - -
50 -10 - -
150 30 - -
200 60 - -
Ans: MPC = - , 0.8 , 0.6 , 0.4 // APC = - , 1.2 , 0.8 , 0.7
(Q27) Income Consumption Marginal Average Propensity Propensity to Save to Save
0 80 ---- -----
100 140 0.4 -----
200 ---- _ _ 0
---- 240 _ _ 0.2
---- 260 0.8 0.35
Ans: Y = 0 , 100 , 200 , 300 , 400 // C = 200 // MPS = - , 0.4 , 0.4 , 0.6 , 0.8 // APC = - , (-) 0.4
(Q28) Income Saving Marginal Average Propensity Propensity to Consume to Consume
0 - 40 ---- -----
50 - 20 ---- -----
100 00 0.6 -----
150 30 _ _ 0.8
200 50 ----- -----
Ans: MPC = - ,0.6 , 0.6 , 0.4 , 0.6 // APC = - ,1.4 , 1, 0.8 , 0.75