CBSE 2025, Set 1

Question

Assuming for a hypothetical economy:
(i) Autonomous Consumption Expenditure $(\overline{c})$ = ₹ 250 crore
(ii) Marginal Propensity to Save (MPS) = 0.2
(iii) Autonomous Investments $(I_0)$ = ₹ 200 crore

Estimate the Break-even level of Income and Equilibrium level of Income, on the basis of information given above.

Edvaya · Accepted Answer

The correct answer is Subjective. Given,
Autonomous Consumption Expenditure $(\overline{c})$ = ₹ 250 crore
Marginal Propensity to Save ($MPS$) = 0.2
Autonomous Investments ($I_0$) = ₹ 200 crore

Marginal Propensity to Consume ($MPC$) $= 1 - MPS$
$= 1 - 0.20 = 0.80$

**Break-even level of income:**
At Break-even level of income, $Y = C$
$Y = \overline{c} + (MPC)Y$
$Y = 250 + 0.80Y$
$0.20Y = 250$
$Y = 	ext{₹ } 1,250 	ext{ crore}$

**Equilibrium level of income:**
At equilibrium level of income, $Y = C + I$
$Y = (250 + 0.80Y) + 200$
$0.20Y = 450$
$Y = 	ext{₹ } 2,250 	ext{ crore}$

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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