12. theory of income & employment

Question 1

Who proposed the Keynesian model of income determination?

Answer 1

JM Keynes.

Question 2

What is the keynesian model of income determination?

Answer 2

The short-run Keynesian model of income determination states that income and output in an economy in the short run depends on the aggregate spending or aggregate demand.

Question 3

State the basic proposition of the keynesian model of income determination.

Answer 3

The basic proposition of the keynesian model of income determination is that income, output and employment in the short run depend on the aggregate spending.

Question 4

What is Aggregate Demand?

Answer 4

Aggregate Demand is the total amount of goods & services demanded in an economy. Refers to the desired, intended or planned demand or spending by the people.

Question 5

Ex - Ante is to:

Answer 5

Aggregate Demand.

Question 6

List the components of aggregate demand in a two - sector closed economy.

Answer 6

AE = C+I

Question 7

What does the Keynesian theory of consumption function state?

Answer 7

The Keynesian theory of consumption function shows the functional relationship between the desired cosumption expenditure and income.

Question 8

Average Propensity to Consume:

Answer 8

Refers to the proportion of income devoted to consumption.

Question 9

Marginal Propensity to Consume:

Answer 9

Refers to the ratio of change in consumption to change in income.

Question 10

What are the two properties of Consumption Function?

Answer 10

1. Direct relationship between Income and Consumption.

2. When (Y) inc., (C) inc but in a somewhat smaller amt/ratio bcoz a part of income is now also devoted to savings.

Question 11

What is Autonomous Consumption?

Answer 11

The level of consumption at zero level of consumption is called Autonomous Consumption.

Question 12

What is Induced Consumption?

Answer 12

Induced Consumption is a function of income.

Question 13

Define:

Average Propensity to Save.

Answer 13

Average Propensity to Save is the proportion of income that households want to save.

APS = S/Y

Question 14

Define:

Marginal Propensity to Save.

Answer 14

Marginal Propensity to Save is the ratio of change in total desired saving to change in total income.

MPS = <>S/<>Y

Question 15

State the properties of Saving Function.

Answer 15

1. saving line slopes upward.

2. slope of S indicates MPS.

Question 16

What does saving line S indicate?

Answer 16

. slope of S indicates MPS

. its clear from saving line S that its slope (slope of saving line S) is (+) but is <1

Question 17

Define:

Investment Expenditure.

Answer 17

Refers to that part of the aggregate output that takes the form of new plants, new capital equipments and machinery, new structures and addition to business inventories.

Question 18

Define:

Private Investment.

Answer 18

Refers to the expenditure incurred by private enterpreneurs on the purchase of capital equipments, etc.

Question 19

Define:

Public Investment.

Answer 19

Investment undertaken by the government.

Question 20

Define:

Autonomous Investment.

Answer 20

A type of income that is not affected by change in the level of income or output.