CUET UG Economics Booster Test 2 - Consumption and Saving -

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CUET UG Economics Booster Test 2 - Consumption and Saving

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 2 - Consumption and Saving

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QUESTION 1 OF 20

Match the elements of the consumption function's graphical representation.

List I	List II
1. Y-axis intercept	a. Constant rate of change (MPC)
2. Upward sloping line	b. Income (Y)
3. X-axis variable	c. Autonomous consumption (C̄)
4. Y-axis variable	d. Total Consumption (C)

Answer Review

1 Match the elements of the consumption function's graphical representation.

List I	List II
1. Y-axis intercept	a. Constant rate of change (MPC)
2. Upward sloping line	b. Income (Y)
3. X-axis variable	c. Autonomous consumption (C̄)
4. Y-axis variable	d. Total Consumption (C)

A 1-a, 2-b, 3-d, 4-c

B 1-d, 2-a, 3-c, 4-b

C 1-c, 2-a, 3-b, 4-d

D 1-b, 2-c, 3-a, 4-d

💡 Short Explanation

The Y-axis intercept represents autonomous consumption. The slope of the consumption function represents MPC. The X-axis measures income, while the Y-axis measures consumption.

✅ Correct Answer Explanation

In the graphical representation of the Keynesian consumption function: Y-axis intercept → Autonomous Consumption (C̄) because it shows consumption when income is zero. Upward sloping line → Constant rate of change (MPC) because its slope equals the Marginal Propensity to Consume. X-axis variable → Income (Y) since income is measured horizontally. Y-axis variable → Total Consumption (C) because consumption is measured vertically. Thus, the correct matching is: 1 → c 2 → a 3 → b 4 → d Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A) Incorrect because the intercept does not represent MPC and the axes are incorrectly matched.
Option B) Incorrect because the Y-axis intercept represents autonomous consumption, not total consumption.
Option D) Incorrect because income is plotted on the X-axis, not the Y-axis.

🎯 Strategy

Used

Graph Interpretation

Application:

Identify each part of the consumption graph and relate it to its economic meaning.

Final Logic:

Only Option C correctly matches all graphical elements.

🧠 Memory Trick

"Intercept–Auto, Slope–MPC, X–Income, Y–Consumption."

📚 Chapter: Determination of Income and Employment

2 If a linear consumption function is
C=200+0.75Y,
what is the exact value of the slope of this function?

A 200

B 0.75

C 0.25

D Y

💡 Short Explanation

The slope of a linear consumption function equals the coefficient of income. The coefficient of Y is 0.75. Therefore, the slope (MPC) is 0.75.

✅ Correct Answer Explanation

The standard Keynesian consumption function is C=C+cY where: C̄ is autonomous consumption. c is the Marginal Propensity to Consume (MPC), which is also the slope of the consumption function. Comparing C=200+0.75Y, we find that c=0.75. Hence, the slope of the function is 0.75, making Option B correct.

❓ Why Other Options Are Incorrect

Option A) 200 → Incorrect because 200 is the intercept (autonomous consumption).
Option C) 0.25 → Incorrect because this represents the MPS (1 − 0.75), not the slope.
Option D) Y → Incorrect because Y is the income variable, not the slope.

🎯 Strategy

Used

Formula Identification

Application:

Compare the given equation with the standard consumption function to identify the coefficient of income.

Final Logic:

Since the coefficient of Y is 0.75, Option B is correct.

🧠 Memory Trick

"Coefficient of Y = Slope = MPC."

📚 Chapter: Determination of Income and Employment

3 The constant C̄ is plotted as the intercept on the vertical axis, physically demonstrating that it is the value of consumption when income is _______.

A At its maximum

B Equal to one

C Continuously growing

D Zero

💡 Short Explanation

Autonomous consumption occurs even without income. It is represented by the intercept of the consumption function. Therefore, it corresponds to the level of consumption when income is zero.

✅ Correct Answer Explanation

In the Keynesian consumption function, C=C+cY, C̄ represents autonomous consumption, which is independent of income. When Y=0, the equation becomes C=C. Thus, the intercept on the vertical axis represents the level of consumption when income is zero. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A) At its maximum → Incorrect because autonomous consumption is defined at zero income.
Option B) Equal to one → Incorrect because the intercept is not determined at income equal to one.
Option C) Continuously growing → Incorrect because autonomous consumption is constant and independent of income.

🎯 Strategy

Used

Concept Identification

Application:

Recall the economic interpretation of the intercept in the consumption function.

Final Logic:

Since the intercept represents consumption when income equals zero, Option D is correct.

🧠 Memory Trick

"Intercept = Income Zero."

📚 Chapter: Determination of Income and Employment

4 Assertion (A): Autonomous consumption (C̄) is zero when the aggregate income of an economy falls to zero.
Reason (R): Base consumption relies entirely on induced components.

A Both false

B A true, R false

C Both true, R explains A

D A false, R true

💡 Short Explanation

Autonomous consumption exists even when income is zero. It is independent of induced consumption. Therefore, both the Assertion and the Reason are incorrect.

✅ Correct Answer Explanation

The Assertion is false because autonomous consumption (C̄) is not zero when income is zero. In fact, autonomous consumption is the minimum level of consumption that households undertake even in the absence of current income, often financed through past savings or borrowing. The Reason is also false because base (autonomous) consumption does not depend on induced consumption. Instead, induced consumption depends on income, whereas autonomous consumption is independent of income. Hence, both the Assertion and the Reason are false, making Option A the correct answer.

❓ Why Other Options Are Incorrect

Option B) A true, R false → Incorrect because the Assertion is false.
Option C) Both true, R explains A → Incorrect because both statements are false.
Option D) A false, R true → Incorrect because the Reason is also false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Evaluate the truth of the Assertion and the Reason independently using the definition of autonomous consumption.

Final Logic:

Since autonomous consumption exists even at zero income and is independent of induced consumption, both statements are false, making Option A correct.

🧠 Memory Trick

"Auto Exists at Zero; Induced Needs Income."

📚 Chapter: Determination of Income and Employment

5 Which statement is correct regarding induced consumption?
Statements:
1. It is visually represented by the horizontal intercept of the consumption curve.
2. It implies that consumers always spend their entire extra income.

A Only Statement 1 is correct.

B Both Statements 1 and 2 are correct.

C Only Statement 2 is correct.

D Both Statements 1 and 2 are incorrect.

💡 Short Explanation

The horizontal (vertical-axis) intercept represents autonomous consumption. Induced consumption depends on income. Consumers need not spend all additional income.

✅ Correct Answer Explanation

Statement 1 is incorrect because the intercept of the consumption function represents autonomous consumption, not induced consumption. Induced consumption is represented by the income-dependent component (cY) of the consumption function. Statement 2 is also incorrect because induced consumption does not imply that consumers spend all additional income. They spend only a fraction of additional income equal to the Marginal Propensity to Consume (MPC). Unless MPC = 1, some portion of additional income is saved. Therefore, both statements are incorrect, making Option D the correct answer.

❓ Why Other Options Are Incorrect

Option A) Only Statement 1 is correct → Incorrect because Statement 1 is false.
Option B) Both Statements 1 and 2 are correct → Incorrect because both statements are false.
Option C) Only Statement 2 is correct → Incorrect because Statement 2 is also false.

🎯 Strategy

Used

Elimination

Application:

Assess each statement individually based on the definitions of autonomous and induced consumption.

Final Logic:

Since both statements are false, Option D is correct.

🧠 Memory Trick

"Intercept = Auto, cY = Induced."

📚 Chapter: Determination of Income and Employment

6 Arrange the logical sequence of an economy experiencing a rise in income.
Statements:
1. National Income rises by Re 1.
2. Aggregate consumption expands.
3. Induced consumption increases by c.
4. The variable component cY adjusts upward.

A 1, 4, 3, 2

B 2, 3, 1, 4

C 4, 1, 2, 3

D 3, 2, 4, 1

💡 Short Explanation

Income rises first. The income-dependent component (cY) responds. Induced consumption increases by c times the rise in income. Total consumption then expands.

✅ Correct Answer Explanation

The correct sequence is: 1. National Income rises by Re 1. 2. The variable component (cY) adjusts upward because induced consumption depends on income. 3. Induced consumption increases by c, where c is the Marginal Propensity to Consume. 4. Aggregate consumption expands as a result of the increase in induced consumption. Thus, the correct logical order is: 1 → 4 → 3 → 2 Hence, Option A is the correct answer.

❓ Why Other Options Are Incorrect

Option B) Incorrect because aggregate consumption cannot increase before income rises.
Option C) Incorrect because the variable component cannot adjust before income changes.
Option D) Incorrect because induced consumption cannot increase before the rise in income.

🎯 Strategy

Used

Sequential Logic

Application:

Arrange the events according to the cause-and-effect relationship in the Keynesian consumption function.

Final Logic:

Income Rise → cY Changes → Induced Consumption Rises → Total Consumption Expands, making Option A correct.

🧠 Memory Trick

"Income → cY → Induced → Consumption."

📚 Chapter: Determination of Income and Employment

7 Graphically, how is the Marginal Propensity to Consume (MPC) physically represented on the consumption function chart?

A The horizontal intercept

B The vertical intercept

C The slope of the consumption function (tan α)

D The 45-degree reference line

💡 Short Explanation

MPC measures how much consumption changes when income changes. On the graph, this change is represented by the slope of the consumption function. A steeper slope indicates a higher MPC.

✅ Correct Answer Explanation

The consumption function is expressed as: C=C+cY where c is the Marginal Propensity to Consume (MPC). Graphically, the coefficient c determines the slope (tan α) of the consumption function. It indicates the increase in consumption corresponding to every additional unit of income. Therefore, the slope of the consumption function represents the MPC, making Option C the correct answer.

❓ Why Other Options Are Incorrect

Option A) The horizontal intercept → Incorrect because the graph has no horizontal intercept representing MPC.
Option B) The vertical intercept → Incorrect because the vertical intercept represents autonomous consumption (C̄).
Option D) The 45-degree reference line → Incorrect because the 45-degree line represents points where Income = Consumption, not MPC.

🎯 Strategy

Used

Graph Interpretation

Application:

Identify which graphical feature changes when the Marginal Propensity to Consume changes.

Final Logic:

Since MPC determines the slope (tan α) of the consumption function, Option C is correct.

🧠 Memory Trick

"MPC = Measure of the Slope."

📚 Chapter: Determination of Income and Employment

8 Match the numerical values of MPC with their behavioral meanings.

List I	List II
1. MPC = 0	a. Entire change in income used on consumption
2. MPC = 1	b. Does not increase consumption at all
3. 0 < MPC < 1	c. Uses part of the change in income
4. c	d. Denotes Marginal Propensity to Consume

A 1-c, 2-b, 3-a, 4-d

B 1-b, 2-a, 3-c, 4-d

C 1-a, 2-c, 3-d, 4-b

D 1-d, 2-a, 3-b, 4-c

💡 Short Explanation

MPC = 0 means no additional consumption. MPC = 1 means all additional income is consumed. Values between 0 and 1 indicate only part of additional income is spent. c is the symbol for MPC.

✅ Correct Answer Explanation

The correct matching is: 1. MPC = 0 → b. Does not increase consumption at all 2. MPC = 1 → a. Entire change in income used on consumption 3. 0 < MPC < 1 → c. Uses part of the change in income 4. c → d. Denotes Marginal Propensity to Consume Thus, the correct sequence is: 1-b, 2-a, 3-c, 4-d Therefore, Option B is the correct answer.

❓ Why Other Options Are Incorrect

Option A) Incorrect because MPC = 0 cannot mean spending part of the additional income.
Option C) Incorrect because MPC = 0 and MPC = 1 are incorrectly matched.
Option D) Incorrect because c denotes MPC, not partial consumption behaviour.

🎯 Strategy

Used

Option Grouping

Application:

Recall the economic meaning of each special value of MPC and match it with the corresponding behavioural interpretation.

Final Logic:

Only Option B correctly matches all four concepts.

🧠 Memory Trick

"0 = Save All, 1 = Spend All, Between = Split."

📚 Chapter: Determination of Income and Employment

📄 Passage

"When income changes, change in consumption (ΔC) can never exceed the change in income (ΔY). The maximum value which c can take is 1. On the other hand, consumer may choose not to change consumption even when income has changed. In this case MPC = 0."

If an individual receives an unexpected bonus of Rs. 5000 and decides to stash all of it in a vault without spending a single rupee, what is the value of their Marginal Propensity to Consume for this bonus?

A 0

B 1

C 0.5

D -1

💡 Short Explanation

No additional consumption takes place. Therefore, ΔC = 0. Hence, MPC = 0.

✅ Correct Answer Explanation

The formula for MPC is: MPC=ΔC/ΔY Here: Additional income (ΔY) = Rs. 5000 Additional consumption (ΔC) = Rs. 0 Therefore, MPC=0/5000=0 Since the individual saves the entire bonus and spends nothing, the Marginal Propensity to Consume is 0, making Option A correct.

❓ Why Other Options Are Incorrect

Option B) 1 → Incorrect because it would mean the entire bonus is spent.
Option C) 0.5 → Incorrect because half the bonus is not spent.
Option D) -1 → Incorrect because MPC cannot normally be negative.

🎯 Strategy

Used

Substitution

Application:

Apply the MPC formula using the given values of additional income and additional consumption.

Final Logic:

Since ΔC = 0, MPC = 0, making Option A correct.

🧠 Memory Trick

"Spend Nothing = MPC Zero."

📚 Chapter: Determination of Income and Employment

📄 Passage

In an economy where MPC is exactly 1, what logically happens to the total change in income (ΔY)?

A It is added directly to autonomous consumption.

B Half of it is saved for future inventory.

C It is entirely used for changing consumption.

D It creates an unintended accumulation of inventories.

💡 Short Explanation

MPC = 1 means every additional rupee of income is spent. No part of the increase in income is saved. Therefore, the entire change in income becomes additional consumption.

✅ Correct Answer Explanation

When MPC=ΔC/ΔY=1, it implies ΔC=ΔY. Thus, every additional unit of income is spent on consumption, and Marginal Propensity to Save (MPS) = 0. Hence, the entire increase in income is used for consumption, making Option C the correct answer.

❓ Why Other Options Are Incorrect

Option A) Incorrect because autonomous consumption does not change with current income.
Option B) Incorrect because MPC = 1 means nothing is saved.
Option D) Incorrect because unintended inventories are unrelated to the definition of MPC.

🎯 Strategy

Used

Concept Identification

Application:

Interpret the economic meaning of the special case where MPC = 1.

Final Logic:

Since the entire increase in income is consumed, Option C is correct.

🧠 Memory Trick

"MPC = 1 → Spend Every One."

📚 Chapter: Determination of Income and Employment

11 Assertion (A): Savings in macroeconomic terms represents the sum of all consumed income in an economy.
Reason (R): Savings is definitively that part of income that is not consumed.

A Both true, R explains A

B A false, R true

C A true, R false

D Both false

💡 Short Explanation

Savings is the portion of income not spent on consumption. The Assertion incorrectly equates savings with consumed income. The Reason correctly states the definition of savings.

✅ Correct Answer Explanation

The Assertion is false because savings does not represent the amount of income that is consumed. Instead, savings are the remaining part of income after consumption expenditure has been deducted. The Reason is true because savings are defined as: S=Y-C where: S = Savings Y = Income C = Consumption Thus, savings represent that part of income which is not consumed. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A) Both true, R explains A → Incorrect because the Assertion is false.
Option C) A true, R false → Incorrect because the Assertion is false while the Reason is true.
Option D) Both false → Incorrect because the Reason is correct.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Evaluate the truthfulness of the Assertion and the Reason separately using the definition of savings.

Final Logic:

Since the Assertion is false and the Reason is true, Option B is correct.

🧠 Memory Trick

"Income − Consumption = Savings."

📚 Chapter: Determination of Income and Employment

12 If a household's income (Y) is Rs. 10,000 and their autonomous consumption is Rs. 1,000 with an MPC of 0.6, what is their total savings (S)? (S = Y − C )

A Rs. 4,000

B Rs. 7,000

C Rs. 6,000

D Rs. 3,000

💡 Short Explanation

First calculate total consumption. Then subtract consumption from income. Savings equal Income − Consumption.

✅ Correct Answer Explanation

Given: Income (Y) = Rs. 10,000 Autonomous Consumption (C̄) = Rs. 1,000 MPC (c) = 0.6 Consumption Function: C=C+cYC=1000+0.6(10000)C=1000+6000=7000 Savings: S=Y-CS=10000-7000=3000 Therefore, total savings = Rs. 3,000, making Option D correct.

❓ Why Other Options Are Incorrect

Option A) Rs. 4,000 → Incorrect due to incorrect calculation of savings.
Option B) Rs. 7,000 → Incorrect because this is the value of consumption.
Option C) Rs. 6,000 → Incorrect because it ignores autonomous consumption.

🎯 Strategy

Used

Substitution

Application:

Substitute the given values into the consumption function and then apply the savings equation.

Final Logic:

C=7000,S=10000-7000=3000
Hence, Option D is correct.

🧠 Memory Trick

"Find C First, Then Save the Rest."

📚 Chapter: Determination of Income and Employment

13 The Marginal Propensity to Save (MPS) is defined algebraically as the ______ divided by the change in income (ΔY).

A Total Income (Y)

B Change in Savings (ΔS)

C Change in Consumption (ΔC)

D Base Savings (S̄)

💡 Short Explanation

MPS measures how savings change when income changes. It is calculated using changes rather than totals. The formula is ΔS/ΔY.

✅ Correct Answer Explanation

The Marginal Propensity to Save (MPS) measures the proportion of additional income that is saved. It is defined as: MPS=ΔS/ΔY where: ΔS = Change in Savings ΔY = Change in Income Thus, MPS measures the change in savings per unit change in income, making Option B the correct answer.

❓ Why Other Options Are Incorrect

Option A) Total Income (Y) → Incorrect because MPS uses changes, not total income.
Option C) Change in Consumption (ΔC) → Incorrect because ΔC/ΔY defines MPC.
Option D) Base Savings (S̄) → Incorrect because autonomous savings are not used in the MPS formula.

🎯 Strategy

Used

Formula Identification

Application:

Recall the standard NCERT definition and formula for the Marginal Propensity to Save.

Final Logic:

Since
MPS=ΔS/ΔY,
Option B is correct.

🧠 Memory Trick

"MPS = More Income, More Savings."

📚 Chapter: Determination of Income and Employment

14 As S=Y-C, a unit change in income results in the identity ΔS/ΔY=1-c. Therefore, if MPC is 0.75, what is MPS?

A 0.75

B 1.00

C 0.00

D 0.25

💡 Short Explanation

MPC and MPS always add up to 1. Subtract MPC from 1 to obtain MPS. Here, 1 − 0.75 = 0.25.

✅ Correct Answer Explanation

The relationship between the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) is: MPC+MPS=1 or MPS=1-MPC Given: MPC=0.75 Therefore, MPS=1-0.75=0.25 Hence, the correct answer is Option D.

❓ Why Other Options Are Incorrect

Option A) 0.75 → Incorrect because this is the value of MPC, not MPS.
Option B) 1.00 → Incorrect because MPC and MPS together equal 1.
Option C) 0.00 → Incorrect because MPS becomes zero only when MPC equals 1.

🎯 Strategy

Used

Substitution

Application:

Apply the identity MPS = 1 − MPC using the given value.

Final Logic:

1-0.75=0.25
Therefore, Option D is correct.

🧠 Memory Trick

"Consume 75, Save 25."

📚 Chapter: Determination of Income and Employment

15 Which statement accurately differentiates APC from MPC?
Statements:
1. APC is the ratio of total consumption to total income (C/Y).
2. MPC is the ratio of total consumption to total income (C/Y).

A Only Statement 1 is correct.

B Only Statement 2 is correct.

C Both Statements 1 and 2 are correct.

D Both Statements 1 and 2 are incorrect.

💡 Short Explanation

APC measures total consumption per unit of total income. MPC measures change in consumption per unit change in income. Therefore, only Statement 1 is correct.

✅ Correct Answer Explanation

Statement 1 is correct because the Average Propensity to Consume (APC) is defined as: APC=C/Y It measures the proportion of total income spent on consumption. Statement 2 is incorrect because the Marginal Propensity to Consume (MPC) is calculated as: MPC=ΔC/ΔY It measures the change in consumption resulting from a change in income, not the ratio of total consumption to total income. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B) Only Statement 2 is correct → Incorrect because Statement 2 is false.
Option C) Both Statements 1 and 2 are correct → Incorrect because Statement 2 is incorrect.
Option D) Both Statements 1 and 2 are incorrect → Incorrect because Statement 1 is correct.

🎯 Strategy

Used

Concept Identification

Application:

Differentiate between average and marginal propensities using their standard formulas.

Final Logic:

Since APC = C/Y while MPC = ΔC/ΔY, Option A is correct.

🧠 Memory Trick

"Average = Total, Marginal = Change."

📚 Chapter: Determination of Income and Employment

16 Arrange the algebraic steps to substitute the consumption function into the APS formula.
Statements:
1. Divide the expression by Y.
2. Result is APS = −C̄/Y + (1 − c).
3. Express S = Y − (C̄ + cY).
4. Simplify to S = −C̄ + (1 − c)Y.

A 1, 2, 3, 4

B 2, 4, 1, 3

C 3, 4, 1, 2

D 4, 1, 3, 2

💡 Short Explanation

Begin with the savings equation. Simplify the expression. Divide by income. Obtain the APS equation.

✅ Correct Answer Explanation

Starting with the savings identity: S=Y-C Substitute the consumption function: S=Y-(C+cY) This gives: Step 3 S=Y-(C+cY) ↓ Step 4 S=-C+(1-c)Y ↓ Step 1 Divide both sides by Y: S/Y=-C/Y+(1-c) ↓ Step 2 Recognize APS=-C/Y+(1-c) Thus, the correct order is: 3 → 4 → 1 → 2 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A) Incorrect because division cannot occur before obtaining the simplified savings equation.
Option B) Incorrect because it starts with the final expression.
Option D) Incorrect because simplification cannot precede substitution.

🎯 Strategy

Used

Sequential Logic

Application:

Arrange the algebraic derivation according to the logical mathematical steps.

Final Logic:

Substitute → Simplify → Divide → Obtain APS, making Option C correct.

🧠 Memory Trick

"Substitute → Simplify → Divide → APS."

📚 Chapter: Determination of Income and Employment

17 If C=150+0.5Y, what is the required income (Y) for consumption to equal exactly Rs. 400?

A 150

B 500

C 250

D 400

💡 Short Explanation

Substitute the given value of consumption into the consumption function. Solve the equation for income. The required income is Rs. 500.

✅ Correct Answer Explanation

Given the consumption function: C=150+0.5Y Since consumption is Rs. 400, 400=150+0.5Y Subtract 150 from both sides: 250=0.5Y Divide both sides by 0.5: Y=250/0.5=500 Therefore, the required income is Rs. 500, making Option B the correct answer.

❓ Why Other Options Are Incorrect

Option A) 150 → Incorrect because it represents autonomous consumption.
Option C) 250 → Incorrect because this is obtained before dividing by 0.5.
Option D) 400 → Incorrect because this is the value of consumption, not income.

🎯 Strategy

Used

Substitution

Application:

Substitute the given consumption value into the consumption function and solve for income.

Final Logic:

400=150+0.5YY=500
Hence, Option B is correct.

🧠 Memory Trick

"Substitute C, Solve for Y."

📚 Chapter: Determination of Income and Employment

18 In the function C=50+0.9Y, the value 0.9 signifies that for every Rs. 100 increase in income, consumption will predictably increase by _______.

A Rs. 90

B Rs. 10

C Rs. 50

D Rs. 0.9

💡 Short Explanation

0.9 is the Marginal Propensity to Consume (MPC). It indicates that 90% of every additional rupee of income is spent. Therefore, an increase of Rs.100 in income raises consumption by Rs.90.

✅ Correct Answer Explanation

The consumption function is: C=50+0.9Y Here, 0.9 represents the Marginal Propensity to Consume (MPC). For every additional Rs.100 of income, 0.9×100=90 Thus, consumption increases by Rs.90. Hence, Option A is the correct answer.

❓ Why Other Options Are Incorrect

Option B) Rs. 10 → Incorrect because Rs.10 represents the increase in saving (MPS = 0.1).
Option C) Rs. 50 → Incorrect because Rs.50 is autonomous consumption.
Option D) Rs. 0.9 → Incorrect because MPC is a proportion, not the increase in rupees for Rs.100.

🎯 Strategy

Used

Concept Identification

Application:

Interpret the coefficient of income as the Marginal Propensity to Consume.

Final Logic:

100×0.9=90
Hence, Option A is correct.

🧠 Memory Trick

"0.9 Means Spend 90 out of 100."

📚 Chapter: Determination of Income and Employment

19 Match the dynamic behaviors of average propensities as income increases.

List I	List II
1. APC + APS	a. Starts negative, moves positively
2. Value of APC	b. Always exactly equal to 1
3. Value of APS	c. APC = 1, APS = 0
4. Break-even point (C = Y)	d. Falls continuously

A 1-a, 2-b, 3-c, 4-d

B 1-c, 2-d, 3-a, 4-b

C 1-d, 2-c, 3-b, 4-a

D 1-b, 2-d, 3-a, 4-c

💡 Short Explanation

APC and APS together always equal 1. APC falls as income rises. APS starts negative and gradually increases. At the break-even point, consumption equals income.

✅ Correct Answer Explanation

The correct matching is: 1. APC + APS → b. Always exactly equal to 1 2. Value of APC → d. Falls continuously 3. Value of APS → a. Starts negative, moves positively 4. Break-even point (C = Y) → c. APC = 1, APS = 0 Thus, the correct sequence is: 1-b, 2-d, 3-a, 4-c Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A) Incorrect because APC + APS is always 1, not "starts negative."
Option B) Incorrect because the break-even point is mismatched.
Option C) Incorrect because APC does not always fall into the first relation.

🎯 Strategy

Used

Option Grouping

Application:

Recall the properties of APC and APS and match them with their dynamic behaviour.

Final Logic:

Only Option D correctly matches all four concepts.

🧠 Memory Trick

"APC Falls, APS Rises, Together Always One."

📚 Chapter: Determination of Income and Employment

20 If an economy has an income of Rs. 2000 and an Average Propensity to Consume (APC) of 0.85, what is the exact numerical value of the total savings?

A Rs. 850

B Rs. 1700

C Rs. 300

D Rs. 0.15

💡 Short Explanation

First calculate APS using APS = 1 − APC. Then multiply APS by income. The resulting value is total savings.

✅ Correct Answer Explanation

Given: Income = Rs. 2000 APC = 0.85 First, APS=1-APCAPS=1-0.85=0.15 Savings are calculated as: S=APS×YS=0.15×2000=300 Therefore, the total savings are Rs. 300, making Option C the correct answer.

❓ Why Other Options Are Incorrect

Option A) Rs. 850 → Incorrect because it is based on an incorrect calculation.
Option B) Rs. 1700 → Incorrect because it represents consumption, not savings.
Option D) Rs. 0.15 → Incorrect because this is APS, not the amount of savings.

🎯 Strategy

Used

Substitution

Application:

Apply the formulas APS = 1 − APC and Savings = APS × Income.

Final Logic:

APS=0.15,S=0.15×2000=300
Hence, Option C is correct.

🧠 Memory Trick

"Find APS First, Then Multiply by Income."

📚 Chapter: Determination of Income and Employment

CUET UG Economics Booster Test 2 - Consumption and Saving

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