Consumption and Investment - Macroeconomics - Economics Previous Year Questions

1

2022 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2022

Consider a two-period consumption model in which a representative household lives for two periods only. In period 1, he earns income \(y_1\) and consumes \(c_1\). In period 2, he earns \(y_2\) and consumes \(c_2\). He can borrow and lend at the same rate of interest (\(r\)). His lifetime utility function is as follows:
\(U(c_1, c_2) = \ln(c_1) + \beta \ln(c_2)\)
where \(\beta > 0\) measures the sensitivity of future period’s consumption. What will be the marginal propensity to consume of current consumption, i.e. \(\frac{\partial c_1}{\partial y_1}\)?

A

\(\frac{1}{1+\beta}\)

B

\(\frac{1}{1+\beta^2}\)

C

\(\frac{y_1}{1+\beta}\)

D

\(\frac{y_1}{1+\beta^2}\)

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2

2022 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2022

Suppose Raju enters the job market at age 25 and earns annual income of Rs. 6000. He retires at age 65 and his life expectancy is 75 years. He does not own any assets. Assume that Raju consumes annual income uniformly over his lifetime. What will be his average propensity to consume during employment years?

A

0.90

B

0.80

C

0.50

D

0.40

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3

2023 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2023

Consider the Keynesian consumption function \( C = \alpha + \beta Y \), where \( C \) is the aggregate consumption, \( Y \) is the aggregate income, \( \alpha \) is a constant (\( \alpha > 0 \)), and \( \beta \) is the marginal propensity to consume (\( 0 < \beta < 1 \)). Then, the average propensity to consume is

A

\(\alpha \)

B

\(\frac{\alpha}{Y} + \beta \)

C

\(\alpha Y + \beta Y^2 \)

D

\(\alpha + \frac{\beta}{Y} \)

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4

2023 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2023

In the context of endogenous growth theory, the Nobel laureate Paul Romer emphasized that “ideas” are

A

non-rival

B

rival with medium degree of excludability

C

rival with high degree of excludability

D

rival with low degree of excludability

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5

2024 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2024

Suppose XYZ Corp. is totally financed by equity; it is earning Rs. 2.50 per share; its capitalization rate is 20%. There are 10,000 shares outstanding, and the replacement cost of the firm's real assets is Rs. 1,25,000. XYZ Corp.'s value of Tobin's \(q\) is ______ (in integer).

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6

2025 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2025

Which one of the following statements is NOT CORRECT in the context of Keynesian Absolute Income Hypothesis?

A

Average Propensity to Consume (APC) plus Average Propensity to Save (APS) is equal to one.

B

Marginal Propensity to Consume (MPC) is constant.

C

Average Propensity to Consume (APC) increases as income increases.

D

Marginal Propensity to Consume (MPC) plus Marginal Propensity to Save (MPS) is equal to one.

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7

2025 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences-Economics (XH-C1) 2025

Consider a simple Keynesian closed economy model with the following information: The Marginal Propensity to Consume (MPC) is 0.9 and the initial level of saving is INR 120. When income rises by INR 100, then the new level of saving will be INR ______ (in integer)

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8

2026 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences - Economics (XH-C1) 2026

In an economy, which one of the following relates private investment to the stock market?

A

Neo-classical theory of capital accumulation

B

Capital asset pricing model

C

Tobin’s $q$

D

Investment accelerator model

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9

2026 · Economics · Macroeconomics · Consumption and Investment

Humanities & Social Sciences - Economics (XH-C1) 2026

An individual lives for two periods, Period 1 and Period 2. In Period 1, her income is 210, and in Period 2, her income is 0. She saves in Period 1 and earns a real interest rate of 10% on these savings in Period 2. She does not save anything in Period 2. She consumes equal amounts in both the time periods. Her consumption in the current period is _____ (in integer)

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