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Read the following… (Class 12 Economics SQP 2024-25, Q7)

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EconomicsCBSE Class 12 · Sample paper, session 2024-25 · 1 mark · MCQ

CBSE Class 12 Economics sample paper 2024-25: question 7

From the official CBSE sample question paper for 2024-25, section A, question 7, for 1 mark. Try it first; the hints and our step-by-step solution are below.

Q7 · 1 mark · MCQDetermination of Income and Employment

Read the following statements carefully:
Statement 1: The maximum value of Marginal Propensity to Consume (MPC) can be unity.
Statement 2: As the income of an economy increases, the proportionate increase in the level of consumption is always more than the increase in the level of income.
In light of the given statements, choose the correct option from the following:

  1. (A)Statement 1 is true and Statement 2 is false.
  2. (B)Statement 1 is false and Statement 2 is true.
  3. (C)Both Statements 1 and 2 are true.
  4. (D)Both Statements 1 and 2 are false.

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2024-25.

Hints

Open one hint at a time and try again before the next.

Hint 1

Can people consume more than their extra income for ever?

Hint 2

What is the range of MPC?

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Statement 1 is true: MPC lies between 0 and 1, so its maximum value can be 1 (the whole of extra income consumed).

  2. Statement 2 is false: consumption rises by less than income (MPC < 1), so it does not rise more than proportionately. Option (A).

    1 mark

Answer: (A) Statement 1 is true and Statement 2 is false.

Where the marks are

  • MPC ≤ 1; consumption rises by less than income (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Determination of Income and Employment, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2024-25: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.