12th Class Economics Sample Paper Economics - Sample Paper-6

  • question_answer
    Investment demand includes financial investment like purchase of shares from secondary market. Do you agree? Or Explain consumption function with the help of a diagram.

    Answer:

    No, I do not agree. The term investment demand refers to the demand for real investment and not financial investment. Real investment is concerned with the increase in stock of capital assets such as tools, equipments, inventories and also increase in stock of consumer goods. Thus, it does not include investment in shares and securities.                            Or The functional relationship between the consumption expenditure and the income is known as consumption function. Symbolically, C = f (Y), which is read as, "Consumption is a function of income'. Consumption function in terms of an algebraic expression can be written as:             \[C=\overline{C}+bY\] Where, C = Consumption expenditure \[\overline{C}\]= Autonomous consumption at zero level of income b = Marginal Propensity to Consume Y = Income Let us understand it with the help of a diagram. Consumption and Income Curves In the above diagram, point 6 represents the break even point, where the consumption expenditure is equal to the income. To the left of point B, consumption is greater than income and to the right of point B, consumption is less than income.                          


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