Page 107 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes 5.6 Review Questions

1. The marginal propensity to consume is 8. Autonomous expenditures are 42000. What is
the level of income in the economy? Demonstrate graphically.

2. The marginal propensity to save is 0.33 and autonomous expenditures have just fallen by
200/-. What will likely happen to income?
3. The marginal propensity to save is .5 and autonomous expenditures have just risen to
2000. The economy is at its potential level of income. What will likely happen to income?
Why?
4. For each of the following consumption functions, find the marginal propensity to consume,
MPS = dc/dy.
(a) C = C + bY
0
(b) C = 1500 + 0.75Y

5. What is the MPC when (a) C= 40+0.75Y; (b) C= 60+0.80Y; and (c) C= 20+0.90Yd?
6. Suppose planned consumption is given by the equation C= 40+0.75Yd. Find planned
consumption when disposable income is 300, 400 and 500.
7. Explain the Engel's law of consumption.
8. Analyse the consumption-income relationship and explain the terms APC, MPC, APS and
MPS.
9. Discuss the factors that affect the propensity to consume.
10. Explain, with the help of examples, that MPS + MPC = 1.

Answers: Self Assessment

1. (b) 2. (d)
3. (d) 4. (a)

5. dissavings 6. savings
7. Autonomous 8. induced
9. Marginal Propensity to Consume 10. Zero
11. 0.4 12. Average Propensity to Consume
13. James Duesenberry 14. 70
15. True 16. False
17. True

5.7 Further Readings

Books Dr. Atmanand, Managerial Economics, Excel Books, Delhi.
H L Ahuja, Macro Economics Theory and Policy, S Chand Publications

Shapiro and Edward, Macro Economic Analysis, Galgotia, New Delhi
W H Branson, Macro Economic Theory and Policy, AITBS Publishers and Distributors,
New Delhi

102 LOVELY PROFESSIONAL UNIVERSITY