1-MARK QUESTIONS (definitions & quick
facts)
1. Aggregate demand (AD): Total planned spending on domestic output at a
given income/price (AD = C + I [+ G + X − M], as applicable).
2. Aggregate supply (AS): Total value of goods/services supplied; in
Keynesian short run, AS = Y or C + S.
3. Level of household consumption demand mainly depends on disposable
income and propensity to consume (also wealth, expectations, interest rate,
etc.).
4. APC (Average Propensity to Consume) = C/Y.
5. MPC (Marginal Propensity to Consume) = ΔC/ΔY.
6. Autonomous consumption (Cₐ): Consumption when income is zero
(intercept of C function).
7. Break-even point: Income where C = Y ⇒ S = 0.
8. Can APC > 1? Yes, at very low income (dissaving).
9. Can APC be zero? Only if C = 0 (theoretical; practically > 0).
10.Relationship APC & APS: APC + APS = 1.
11.If APS = 0.6, APC = 1 − 0.6 = 0.4.
12.If MPC and MPS are equal (0.5 each), multiplier k = 1/(1−MPC) =
1/MPS = 2.
13.Minimum value of investment multiplier: 1 (when MPC = 0).
14.Maximum value of multiplier: Tends to ∞ as MPC → 1.
15.Can average propensity to consume be negative? No (C ≥ 0).
16.What do you mean by investment multiplier? Ratio k = ΔY/ΔI =
1/(1−MPC) = 1/MPS.
17.Average propensity to save negative? Yes, if S < 0 (dissaving at low Y).
18.Impact of increase in CRR on AD: ↑CRR ⇒ ↓money supply/credit ⇒ ↓I ⇒
↓AD.
19.Investment: Addition to the capital stock (fixed capital + inventory).
20.Why can’t MPC > 1? Because ΔC ≤ ΔY.
21.Effect of deficient demand: ↓Output, ↓Employment, recessionary pressure.
22.Inflationary gap measure: Excess of AD at full-employment income over
full-employment AS.
23.Which situation gives a straight-line consumption function? Constant
MPC and autonomous C (C = Cₐ + bY).
24.Impact of continuous rise in income on APC? APC tends to fall (C rises
less than proportionately).
facts)
1. Aggregate demand (AD): Total planned spending on domestic output at a
given income/price (AD = C + I [+ G + X − M], as applicable).
2. Aggregate supply (AS): Total value of goods/services supplied; in
Keynesian short run, AS = Y or C + S.
3. Level of household consumption demand mainly depends on disposable
income and propensity to consume (also wealth, expectations, interest rate,
etc.).
4. APC (Average Propensity to Consume) = C/Y.
5. MPC (Marginal Propensity to Consume) = ΔC/ΔY.
6. Autonomous consumption (Cₐ): Consumption when income is zero
(intercept of C function).
7. Break-even point: Income where C = Y ⇒ S = 0.
8. Can APC > 1? Yes, at very low income (dissaving).
9. Can APC be zero? Only if C = 0 (theoretical; practically > 0).
10.Relationship APC & APS: APC + APS = 1.
11.If APS = 0.6, APC = 1 − 0.6 = 0.4.
12.If MPC and MPS are equal (0.5 each), multiplier k = 1/(1−MPC) =
1/MPS = 2.
13.Minimum value of investment multiplier: 1 (when MPC = 0).
14.Maximum value of multiplier: Tends to ∞ as MPC → 1.
15.Can average propensity to consume be negative? No (C ≥ 0).
16.What do you mean by investment multiplier? Ratio k = ΔY/ΔI =
1/(1−MPC) = 1/MPS.
17.Average propensity to save negative? Yes, if S < 0 (dissaving at low Y).
18.Impact of increase in CRR on AD: ↑CRR ⇒ ↓money supply/credit ⇒ ↓I ⇒
↓AD.
19.Investment: Addition to the capital stock (fixed capital + inventory).
20.Why can’t MPC > 1? Because ΔC ≤ ΔY.
21.Effect of deficient demand: ↓Output, ↓Employment, recessionary pressure.
22.Inflationary gap measure: Excess of AD at full-employment income over
full-employment AS.
23.Which situation gives a straight-line consumption function? Constant
MPC and autonomous C (C = Cₐ + bY).
24.Impact of continuous rise in income on APC? APC tends to fall (C rises
less than proportionately).
