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12th Standard English Medium Economics Subject Consumption and Investment Functions Creative 2 Mark Questions with Solution Part - I updated Creative Questions

Published on: 13/05/2022

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Questions:

Generic 2

5 x 2 = 10

What is leakages of multiplier?

What is autonomous investment?

Explain the kinds of multiplier.

Write a short note of induced investment?

List out the assumption of psychological Law of Consumption.

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Answers Key:

Generic 2

5 x 2 = 10

(i) The multiplier assumes that those who earn income are likely to spend a proportion of their additional income on consumption.
(ii) In practice, people tend to spend their additional income on other items
(iii) Such expenses are known as leakages.

Autonomous investment is the expenditure on capital formation, which is independent of the change in income, rate of interest or the rate of profit.

(i) Tax Multiplier
(ii) Employment Multiplier
(iii) Foreign Trade Multiplier
(iv) Investment Multiplier

Induced investment is the expenditure on fixed assets and stocks which are required when level of income and demand in an economy goes up.

(i) Ceteris paribus (constant extraneous variable).
(ii) Existence of Normal conditions.
(iii) Existence of a Laissez-faire capitalist economy.