CBSE 2025, Set 2

Question

Suppose for two imaginary economies A and B, the value of Marginal Propensity to Save (MPS) stands at 0.2 and 0.4 respectively.
For both the economies, Autonomous Consumption ($\overline{c}$) = ₹ 400 crore and Investment Expenditure ($I$) = ₹ 2,000 crore.

Calculate the following:
(a) Break-even level of income for Economy A.
(b) Equilibrium level of income for Economy B.

Edvaya · Accepted Answer

The correct answer is Subjective. **Given:** Autonomous Consumption ($\overline{c}$) = ₹ 400 crore Investment expenditure ($I$) = ₹ 2000 crore For economy A, Marginal Propensity to Save ($MPS$) = 0.2 Marginal Propensity to Consume ($MPC$) = $1 - MPS = 1 - 0.2 = 0.8$ For economy B, Marginal Propensity to Save ($MPS$) = 0.4 Marginal Propensity to Consume ($MPC$) = $1 - MPS = 1 - 0.4 = 0.6$ **(a) Break-even level of income for economy A:** At break-even level, $Y = C$ $Y = \overline{c} + (MPC) 	imes Y$ $Y = 400 + 0.8Y$ $0.2Y = 400$ $Y = 	ext{₹ } 2,000 	ext{ crore}$ **(b) Equilibrium level of income for economy B:** At equilibrium level of income, $Y = C + I$ $Y = \overline{c} + (MPC) 	imes Y + I$ $Y = 400 + 0.6Y + 2000$ $0.4Y = 2400$ $Y = 	ext{₹ } 6,000 	ext{ crore}$

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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