Question
Explain the consumption function with the help of schedule and diagram.
✓
Answer
Consumption function shows the relationship between consumption and income.
C = f(Y)
This equation states that there is a direct relation between consumption and the level of income. As the level of income increases, consumption also increases but the increase in consumption is less than the increase in income.
The concept of consumption function can be further explained by following consumption schedule and curve:
The above table and diagram show that as the income increases, consumption also increases but the increase in consumption is less than increase in income.
C = f(Y)
This equation states that there is a direct relation between consumption and the level of income. As the level of income increases, consumption also increases but the increase in consumption is less than the increase in income.
The concept of consumption function can be further explained by following consumption schedule and curve:
|
Income
|
Consumption (₹ crores)
|
|
0
|
50
|
|
100
|
100
|
|
200
|
150
|
|
300
|
200
|
|
400
|
250
|
|
500
|
300
|
The above table and diagram show that as the income increases, consumption also increases but the increase in consumption is less than increase in income.
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- Net National Product at market price.
- Gross Domestic Product at factor cost.
| (₹ in crores) | ||
| (i) | Rent and interest | 6,000 |
| (ii) | Wages and salaries | 1,000 |
| (iii) | Undistributed profit | 400 |
| (iv) | Net indirect taxes | 100 |
| (v) | Subsidies | 20 |
| (vi) | Corporation tax | 120 |
| (vii) | Net factor income to abroad | 70 |
| (viii) | Dividends | 80 |
| (ix) | Consumption of fixed capital | 50 |
| (x) | Social securty contribution by employers | 200 |
| (xi) | Mixed income | 1,000 |
Calculate ‘Net National Product at Factor Cost’ and ‘Gross National Disposable Income’ from the following:
|
|
|
(₹ in Arab)
|
|
(i)
|
Social security contributions by employees
|
90
|
|
(ii)
|
Wages and salaries
|
800
|
|
(iii)
|
Net current transfers to abroad
|
(–) 30
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|
(iv)
|
Rent and royalty
|
300
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|
(v)
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Net factor income to abroad
|
50
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|
(vi)
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Social security contributions by employers
|
100
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|
(vii)
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Profit
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500
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(viii)
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Interest
|
400
|
|
(ix)
|
Consumption of fixed capital
|
200
|
|
(x)
|
Net indirect tax
|
250
|
Find Gross National Product at Market Price and Private Income:
| (Rs. Crores) | ||
|
|
Private final consumption expenditure | 800 |
|
|
Net current transfers to abroad | 20 |
|
|
Net factor income to abroad | (-) 10 |
|
|
Government final consumption expenditure | 300 |
|
|
Net indirect tax | 150 |
|
|
Net domestic capital formation | 200 |
|
|
Current transfers from government | 40 |
|
|
Depreciation | 100 |
|
|
Net imports | 30 |
|
|
Income accruing to government | 90 |
|
|
National debt interest | 50 |
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| ₹ in crores | ||
| (i) | Compensation of employees | 2,000 |
| (ii) | Profit | 800 |
| (iii) | Rent | 300 |
| (iv) | Interest | 250 |
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| (vi) | Net current transfers to abroad | 200 |
| (vii) | Net exports | (–) 100 |
| (viii) | Net indirect taxes | 1,500 |
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| (x) | Consumption of fixed capital | 120 |
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