CBSE 2024, Set 3

Question

Suppose an economy is in equilibrium. From the following data, calculate Investment Expenditure in the economy:
(i) National Income = ₹20,000 crore
(ii) Marginal Propensity to Consume (MPC) = 0.8
(iii) Autonomous Consumption ($\bar{C}$) = ₹100 crore

Edvaya · Accepted Answer

The correct answer is Subjective. **Given:** National Income ($Y$) = ₹20,000 crore Marginal Propensity to Consume ($MPC$) = 0.8 Autonomous Consumption ($\bar{C}$) = ₹100 crore **Calculation:** We know that at the equilibrium level of income in a two-sector economy, Aggregate Demand equals Aggregate Supply ($Y = C + I$). The consumption function is: $C = \bar{C} + MPC 	imes Y$ Substituting the values: $C = 100 + 0.8 	imes 20,000$ $C = 100 + 16,000 = ₹16,100 	ext{ crore}$. Now, substitute $C$ back into the equilibrium equation: $Y = C + I$ $20,000 = 16,100 + I$ $I = 20,000 - 16,100$ **Investment Expenditure ($I$) = ₹3,900 crore.**

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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