Explore topic-wise InterviewSolutions in Current Affairs.

(i) One of the important features of our Constitution is the Federal System.

(ii) In countries with large territories and huge populations, the Government is run by a Federal System.

(iii) Ruling a large territory from a single capital city is not only difficult but may also lead to the neglect of some far-flung areas.

(iv) People residing there cannot participate in the affairs of the Government. Therefore, the governments function at two levels in a § Federation.

Investment means acquiring new productive assets and using them in the production of goods and services. But, when goods and services are not produced from this, then it is called capital formation. When new goods and services are produced from these assets, capital formation turns into investment.

Functional relation between Income and Consumption is called consumption function.

Actually consumed quantity; not only the desire to consume.

It is the actual investment made by an investor (enterpreneur) in one year.

1. It helps in better understanding of the business cycles.
2. High consumption propensity leads to the maintenance of high level of employment.
3. High consumption propensity maintains economic stability.

Savings and consumption are the functions of income.

Because the sum of MPC and MPS is 1.

MPS = 1 – MPC
Given (MPC = 0.5)
MPS = 1 – 0.5
MPS = 0.5

Till marginal efficiency of capital exceeds rate of interest, until then the investment would be made continuously.

Average propensity to save(APS) = ΔS(Change in savings)/Δ Y(Change in income).

Average propensity to consume is that part of income which is spent on total consumption.

Interest is the return on an invested capital. On lower rates of interest, investment is motivated, and vice-versa.

According to Prof. Keynes, the part of income spent on consumption, is called consumption function. The rate of consumption depends upon the income of the people. When there is a rise in income, consumption also increases and vice versa, but consumption cannot be zero, even when the income is zero.
Formula : C = f (y_d)
were, C = Consumption
f = consumption function
y_d = Disposable income

It is inverse to the capital investment. With every rise in investment, MEC decreases.

It is compared with the rate of Interest.

1. The expected future income reduces with the rise in supply of capital stock
2. Cost of production of machines increases due to the application of law of productivity.

Money spent on capital goods is called price of supply.

To increase the rate of employment and fulfilling the increasing needs, investment is compulsory in any economy. The profit earned from an additional unit of capital is called Marginal efficiency of capital.

Real or actual investment is the investment under which new assets and capital goods increase and building of new factories and machines take place.

Where Marginal Efficiency of Capital equals the Rate of Interest.

Positive kind of correlation is found between income and consumption.

In an economy, the part of income consumed by the whole society is called Average Propensity to Consume. It is that part of income which is spent of consumption.

Formula: Average propensity to consume (APC) =C/Y = Quantity of consumption/Quantity of income.

MPC = 1 – MPS
= 1 – 0.4
MPC = 0.6

MPC = 1 – MPS
= 1 – 0
MPC = 1.

1. Marginal efficiency of capital : Demand of investment is low on high rate of interest and vice-versa. Thus, the MEC curve has a negative slope.

2. Rate of Interest : When the rate of interest is high, it increases the cost of capital, and thus, investment declines.

Investment is promoted when Interest Rate decreases and investment is de-motivated when interest rate is high.

Amount invested to earn profit or interest is called as induced investment.

Price of supply (cost of project), and prospective income.

Investment cannot be imagined without capital stock. Investment refers to the capital invested to complete a project, while interest is the cost of capital.

It is that investment which increases the new assets and quantity of capital goods.

When all the people who agree to work on the prevailing wage rate and get employment, it is called the state of total employment.

The remaining part of total income left after consumption.

Income in the society is determined through consumption and investment.

Sum of MPC and MPC equals to 1. It can be clarified mathematically as follows :
Sum of MPC and MPS = 1
MPC + MPS = 1
MPC = 1 – MPS
MPS = 1 – MPC

In any economy, whatever part of amount a person wants to save from his income is called intended saving.

Correct answer is (c) Keynes

1. Consumption propensity remains constant in the short term.
2. It can never be zero even if the income becomes zero because it is fulfilled through the past savings.
3. It denotes the actual amount of money spent on consumption.

The remaining income, left from the total income, after consumption, is called saving. The relationship between income and saving is called saving function. Saving is dependent upon income, because saving increases when income increases and it decreases as income decreases. But the level of rise in saving is generally more than the level of rise in income.

Income and savings have a positive relationship. When income increases, savings also increase, and when income decreases, savings also decrease.

In any economy, an induced investment is affected by level of income, changes in income, consumption tendency, change in consumption stocks, etc.

Investment is that expenditure due to which there is an increase in capital goods like- Machines, factory, house, furniture, etc. Investment includes the necessary machines and equipment for production, as well as the increase in new construction, and increase in stock.

Both consumption and savings increase with the rise in income, but rate of increase for savings is more than the rate of consumption.

1. Consumption propensity means the actual expenditure of money.
2. Consumption cannot be zero even when the income is zero.

It is the actual saving from family unit income.

(a) If a subject comes up that is not included in any of the three Lists, the Union List, the State List or the Concurrent List, the Union Government is entitled to make laws on it.

(b) These powers are termed as residuary powers.

According to Keynes, consumption of a consumer increases when his income increases, but it does not increase more than the increase in level of income.

Correct answer is (a) 1929-33

In an economy, whatever amount we plan to save, it is known as anticipated saving. It is that saving which can be assumed in advance. Therefore, it is not compulsory that it is equal to the actual saving.

The remaining income left from the total income after consumption is called acutal saving. This can also be called actual investment. Hence, it is that saving which is actually made.