Aggregate Demand and Related Concepts-Important Questions

IMPORTANT QUESTIONS

CHAPTER 17: Aggregate Demand and Related Concepts

  1. What is aggregate demand?
  2. Explain the following components of Aggregate demand:-
    1. Private (household) consumption expenditure
    2. Investment Expenditure
    3. Government expenditure
  3. Draw on a diagram straight line savings curve for an economy. From it derive the consumption curve explaining the method of derivation. Show a point on consumption curve at which average propensity to consume is equal to 1.
  4. Distinguish between voluntary unemployment and involuntary unemployment. What is the significance of this distinction?
  5. Discuss the significance of 45° line in Keynesian economics?
  6. What is ex-ante consumption? Distinguish between autonomous consumption and included consumption.
  7. Are the following statements true or false? Give reasons.
    1. Average propensity to save is always greater than zero.
    2. When the value of average propensity to save is negative, the value of marginal propensity to save will also be negative.
    3. Sum of average propensity to consume and marginal propensity to consume is always equal to 1.
    4. Average propensity to consume can be greater than one.
  8. Define aggregate supply?
  9. What is break-even point?
  10. Can APC be ever zero?
  11. Write the difference between APC and MPC? Give a numerical example.
  12. Define marginal propensity to save?
  13. Give the meaning of:
    1. autonomous consumption
    2. full employment
  14. Give consumption curve, derive saving curve and state the steps taken in the process of derivation. Use the diagram.
  15. From the following compute APC, APS, MPC and MPS:
    Income 200 250 300 350 400
    Saving ------- 5 15 20 50
  16. Complete the following table:
    Income Marginal propensity to consume Savings Average propensity to consume
    0   −30 -----
    100 0.75 ----- -----
    200 0.75 ----- -----
    300 0.75 ----- -----
  17. Estimate the value of aggregate demand in an economy if:
    1. Autonomous Investment (I) = 100 crores
    2. Marginal propensity to save = 0.2
    3. Level of income (Y) = 4,000 crores
    4. Autonomous consumption expenditure (c) = 50 crores
  18. Given below is the consumption function of an economy:
    C = 100 + 0.5Y
    With the help of numerical example show that in this economy as income increases APC will decrease.
  19. If national income is Rs. 90 crores and consumption expenditure is Rs. 81 crores find out average propensity to save. When income rises to Rs. 100 crores and consumption expenditure to 88 crore. What will be the marginal propensity to consume and marginal propensity to save?
  20. Complete the following table:
    Consumption Expenditure Savings Income Marginal propensity to consume
    100 50 150 -----
    175 75 ---- ----
    250 100 ---- ----
    325 125 ---- ----