Keynesian consumption function expresses relationship between:
Options
AConsumption and Savings
BConsumption and Income
CSavings and Investment
DIncome and Investment
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Determination of National IncomePYQ - Jan 2021 (Inter)Question 106 of 20
All Questions Correct Answer
✅ Option b — Consumption and Income
All Options:
- AConsumption and Savings
- BConsumption and Income
- CSavings and Investment
- DIncome and Investment
Detailed Solution & Explanation
To understand the Keynesian consumption function, we need to break it down step by step:
• The Keynesian consumption function is a concept in macroeconomics that explains how consumption expenditure is related to the level of income in an economy.
• According to the Keynesian theory, as income increases, consumption also increases, but not at the same rate.
• The relationship between consumption and income is the core of the Keynesian consumption function, which is expressed as C = a + bY, where C is consumption, a is autonomous consumption, b is the marginal propensity to consume, and Y is income.
The correct answer is right because the Keynesian consumption function primarily focuses on how consumption changes with changes in income, which is a fundamental principle of the Keynesian economic theory.
Some wrong options, such as consumption and savings, or savings and investment, are incorrect because while they are related to consumption, they do not directly express the relationship that the Keynesian consumption function is intended to show.
About This Chapter: National Income
Paper
Paper 4: Business Economics
Weightage
15%
Key Topics
Aggregates, Measurement, Keynesian Theory
A crucial chapter covering national income aggregates like GDP, GNP, NDP, NNP, and the methods of measuring national income (Income, Expenditure, and Output methods). It also introduces Keynesian Theory including the concepts of Aggregate Demand, Consumption Function, and the Multiplier.
View Official ICAI SyllabusExam Strategy Tip
Practice numerical questions on GDP/GNP calculations and the Multiplier. These are guaranteed marks in every exam. Also understand the circular flow of income clearly.
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