Solution
MACRO ECO CHAPTER - 7
Class 12 - Economics
ΔC
1. (a) ΔY
Explanation:
ΔC
ΔY
2.
(d) Disposable income
Explanation:
'Y' denotes induced consumption where 'Y' denotes disposable income as consumption is not determined by taxes.
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Change in Income
3. (a) (
ΔY
)
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Change in Consumption ΔC
Explanation:
Change in Income ΔY
( )
Change in Consumption ΔC
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4.
Consumption
(c) (
C
)
Income Y
Explanation:
Consumption
Income
(
C
Y
)
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5.
(c) Rise in Bank Rate.
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Explanation:
In case of excess demand, there is a need to liberalize credit. It can be done by increasing bank rate so that the commercial
banks also increase their lending rate, thereby decreasing the availability of credit in the economy.
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6.
(c) 100
Explanation:
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100
7.
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(c) A is true but R is false.
Explanation:
A is true but R is false.
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8.
(b) Both A and R are true but R is not the correct explanation of A.
Explanation:
Both A and R are true but R is not the correct explanation of A.
9. Fill in the blanks:
(i) 0.1
(ii) Marginal propensity
10. Consumption is an amount of money spent by people on the purchase of goods and services to satisfy human wants. Consumption
can be of two types.
i. Autonomous consumption- Autonomous consumption is the consumption that is independent of the level of income. Such
expenditure is incurred even if income is zero.
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ii. Induced consumption- Induced consumption is the consumption that is influenced by the level of income. Such consumption
bears a positive relation with the level of income.
C S
Income (Y) Saving (S) C Δ S ΔC Δ Y APC = APS = MPC MPS
11. Y Y
200 0 200 ____ ____ ____ 1 0 ____ ____
250 5 245 5 45 50 0.98 0.02 0.90 0.10
300 15 285 10 40 50 0.95 0.05 0.80 0.20
350 20 330 5 45 50 0.943 0.057 0.90 0.10
400 50 350 30 20 50 0.875 0.125 0.40 0.60
12. GIVEN:
1. National Income (Y) = Rs 1,000
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2. Investment Expenditure (I) = Rs 100
3. Marginal Propensity to Consume (MPC/b) =0.8
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An economy is in equilibrium,
∴ Saving = Investment
∵ Y = C +1
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¯
¯¯¯
or Y = C + bY + I ....... (i)
¯
¯¯¯
∴ C = C + bY
On substituting the given variables in equation (i), we get
¯
¯¯¯
1, 000 = C + 0.8(1, 000) + 100
¯
¯¯¯
1, 000 = C + 800 + 100
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¯
¯¯¯
C = Rs100
Autonomous Consumption’ = Rs. 100 in an equilibrium economy.
13. Calculation of Investment Expenditure:
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Given,
¯
¯¯¯
1. Autonomous Consumtion Expenditure (C ) = 70
2. Marginal Propensity to Consume (MPC or b) = 0.8
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3. National Income (Y) = 700
Since the economy is in equilibrium level,
Saving = Investment
¯
¯¯¯
Y = C + I or Y = C + bY + I ...... (i)
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¯
¯¯¯
∵ C = C + bY
On substituting the given variables in equation (i), we get
700 = 70 + 0.8 × 700 + I
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700 = 70 + 560 + I
700 = 630 + I
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⇒ I = 700 - 630 = 70
∴ Investment Expenditure = Rs 70.
14. In a two-sector economy, Aggregate Supply comprises of:
Consumption (C): It refers to the total value of final goods and services that the household sector is planning to buy,
during a given period of time. There exists a direct relationship between Consumption (C) and Income (Y).
Savings (S): Savings is that part of income which is not consumed. There exists a direct relationship between Savings (S)
and Income (Y).
15. i. As we know that equilibrium level of national income is determined when AS=AD.
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ii. when aggregate supply falls short of aggregate demand, then national income will increase as shown in the given diagram:
iii. When AD < AS [At Y1], then production will have to be increased to meet the excess demand. Consequently, national income
will increase. As we know that positive relationship exists between national income and consumption. So consumption will
increase, which will thereby increase the aggregate demand till we reach the equilibrium.
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