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12th Standard English Medium Economics Subject Consumption and Investment Functions Book Back 3 Mark Questions with Solution updated Book back Questions

Published on: 13/05/2022

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Std: 12th Standard - Economics

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Questions:

Generic 3

5 x 3 = 15

Specify the limitations of the multiplier.

State the concept of super multiplier.

Mention the differences between accelerator and multiplier effect.

Explain any three subjective and objective factors influencing the consumption function.

Differentiate autonomous and induced investment.

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Answers Key:

Generic 3

5 x 3 = 15

(i) Payment towards past debts
(ii) Purchase of existing wealth
(iii) Import of goods and services
(iv) Non availability of consumer goods
(v) Full employment situation

(i) Hicks combined multiplier and accelerator to measure the total effect of initial investment on income.
(ii) Both induced consumption and induced investment are combined.
(iii) Also called leverage effect, it may lead the economy to a very high or low level of income propagation.
\(\mathrm{Y}=\mathrm{C}+\mathrm{I}_{\mathrm{A}}+\mathrm{I}_{\mathrm{P}}\)
Y = aggregate income
C = consumption expenditure
I_A= autonomous investment
I_B= induced private investment

S. No Accelerator Effect Multiplier Effect 1. First developed by R. F. Khan redefined by Keynes Developed by J.M. Clark. Further developed by Hicks, Samuelson 2. It is the ratio of the change in national income to a change in investment.
\(K=\frac{\Delta Y}{\Delta I}\) It is the ratio between induced investment and an initial change in
consumption
\(\beta=\frac{\Delta \mathrm{I}}{\Delta \mathrm{C}}\)

Motive of precaution
To build a reserve against unforeseen contingencies, (c.g.) accidents
Motive of foresight
The desire to provide for anticipated future needs, (c.g.) Old age
Motive of calculation
The desire to enjoy interest and appreciation.
Income Distribution
According to VKRV Rao if income is equally distributed propensity to consume increases
Price level
When price falls, real income rises; people consume more and save more.
Wage level
Consumption expenditure increases with a rise in wages.