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Ex Ante Consumption

Total consump...

Question

Total consumption in the economy can never be more than national income.
True/False

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Solution

False.
1. Autonomous consumption refers to the total consumption which occurs when there is no income in the economy. It is the minimum level of consumption that takes place in the economy which is the basic necessity of life.

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Q. Are the following statements true or false? Give reasons.
Goods produced for self-consumption will be included in national income.

Q. The value of average propensity to save can never be greater than 1.
True. Average propensity to save can never be greater than 1 as savings can never be more than national income.

Q. From the following data about an economy, calculate: (a) Equilibrium level of national income; and (b) Total consumption expenditure at equilibrium level of national income.
(i) C =200 + 0.5 Y is the consumption function where C is consumption expenditure and Y is national income.
(ii) Investment expenditure is 1,500.

Q. C = 50 + 0.5 Y is the consumption function where C is consumption expenditure and Y is National Income and investment expenditure is 2,000 in an economy. Calculate: (i) Equilibrium level of (national) income; (ii) Consumption expenditure at equilibrium level of (National) income.

Q. An economy is in equilibrium. Calculate national income from the following:
Autonomous consumption = 100
Marginal propensity to save = 0.2
Investment expenditure = 200
(National Income = 1,500)

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