Chapter 7 IEF

Question 1

Briefly describe any four objective factors which influence the consumption function in an economy.

Answer 1

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Question 2

Briefly describe the concepts of ‘Autonomous and Induced consumption’.

Answer 2

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Question 3

Define ‘Average propensity to consume’ and ‘Marginal propensity to consume’. How are these calculated?

Answer 3

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Question 4

Define the term Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS).

Answer 4

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Question 5

Briefly explain the relationship between consumption, income and savings,

Answer 5

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Question 6

How does an increase of income affect the level of consumption in an economy? How does Keynes explain the
difference based on household income, and what are the implications of this?

Answer 6

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Question 7

Explain the concept of ‘Marginal propensity to save’ and how it is calculated: Also explain any four determinants of
savings.

Answer 7

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Question 8

Differentiate between “Autonomous” and “Induced” investments. Give any two examples of each.

Answer 8

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Question 9

Briefly describe ‘Autonomous investment and Induced investment’, Who may undertake such investments? In respect of
each of the above types of investment, draw investment curve and give two examples.

Answer 9

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Question 10

What do you understand by ‘Marginal efficiency of capital (MEC)’? Explain the relationship between rate of interest and
the level of investment with reference to MEC with the help of a diagram.

Answer 10

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Question 11

The MEC curve shifts outwards when expected rate of return increases, Briefly discuss any three other factors that might
cause an outward shift in MEC curve.

Answer 11

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Question 12

What might cause a shift in the Marginal Efficiency of Capital curve?

Answer 12

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Question 13

State briefly how a government can influence the level of private investment in the country.

Answer 13

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Question 14

Explain the impact of decrease in interest rates on firms and individuals.

Answer 14

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Question 15

how might the business sector be affected if there were a rise in the savings rate in households?

Answer 15

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Question 16

Explain three ways-how a manufacturer of computer games might be affected by a 0.5% rise in interest rates by the
central bank.

Answer 16

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Question 17

what causes upward and downward shift in the consumption function? Use diagram stating two determinants of consumption.

Answer 17

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Question 18

Describe saving determinants?

Answer 18

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