Aggregate Demand & Supply & Their Components

1 Mark Questions

1. What is excess of exports of goods over the imports of goods called? (Foreign 2014)

Ans. It is referred to as net exports.

2. Define Investment. (Compartment 2014)

Ans. Investments are additions made to the present stock of capital. It leads to an increase in capital assets.

3. Give the meaning of Aggregate Supply. (Foreign 2014)

or Define Aggregate Supply. (All India 2009,2008)

Ans. Aggregate Supply is the money value of the final goods and services or national product produced in an economy during one year. It is equal to income generated.

4. Define Marginal Propensity to Consume. (Delhi 2014; All India 2009)

Ans. The ratio between the change in consumption expenditure with the change in income is called Marginal Propensity to Consume.

Marginal Propensity to Consume (MPC) = <math>\frac{\Delta C}{C}</math>

Where, <math>\Delta C</math> = Change in consumption expenditure

<math>\Delta Y = \text{Change in income}</math>

1. Give the meaning of Marginal Propensity to Save. (All India 2010) or

Define Marginal Propensity to Save. (All India 2009; Delhi 2008C)

Ans. Marginal Propensity to Save is the ratio of change in saving with the change in income.

Marginal Propensity to Save (MPS) = <math>\frac{\Delta S}{\Delta Y}</math>

Where, <math>\Delta S</math> = Change in saving, <math>\Delta Y</math> = Change in income.

6. Give the meaning of Aggregate Demand. (Delhi 2010,2009c)

or Define Aggregate Demand. (Delhi 2009c)

Ans. The sum, total of the demand for all the goods and services in an economy during an accounting year is termed as Aggregate Demand of the economy. Aggregate

Demand of an economy is measured in terms of the (expected) Total Expenditure on all products (goods and services) in the economy during an accounting year.

7. Give the meaning of autonomous consumption. (Delhi 2009)

Ans. The initial or minimum level of consumption done at zero level of income for sustenance is termed as autonomous consumption.

8. What is propensity to consume? (Delhi 2009c)

Ans. It refers to the ratio between consumption (C) and income (Y). It shows level of consumption (C) with respects to a given level of income (Y).

9. What is consumption function? (Delhi 2008)

Ans. The functional relationship between consumption expenditure and the income is known as consumption function. <math>C = f(Y)</math> Where, C = Consumption expenditure Y= Income, f = Functional relationship

1. If Marginal Propensity to Save is 3, what is the value of Marginal Propensity to Consume? (All India 2008) Ans. Here, Marginal Propensity to Save (MPS) =0.3

Hence, Marginal Propensity to Consume (MPC) =1- MPS =1- 0.3 =0.7 <math>MPC = 0.7</math>

11. Define Average Propensity to Consume. (All India 2008)

Ans. The ratio between the consumption expenditure and income is known as Average Propensity to Consume. Average Propensity to Consume <math>(APC) = C/Y</math> Where, C = Consumption expenditure <math>Y = Income</math>.

1. If the value of Average Propensity to Save is (-) 0.6, what will be the value of Average Propensity to Consume? (All India 2008)

Ans. Here, Average Propensity to Save (APS) (-) 0.6 Hence, Average Propensity to Consume (APC) = <math>1 - APS = 1 - (-0.6) = 1.6</math> Average Propensity to Save (APC) = 1.6

1. If the value of Average Propensity to Consume is 1.5, what will be the value of Average Propensity to Save? (Delhi 2008C)

Ans. Here, Average Propensity to Consume <math>(APC) = 1.5</math> Now, we know that Average Propensity to Save (APS) =1- APC So, Average Propensity to Save (APS) =1- <math>1.5 = -0.5</math>