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If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion?
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If autonomous consumption expenditures by the government increases by ...
Answer:
Given Information:
- Autonomous consumption expenditures by the government increased by Rs 5,000
- Half of the income is always spent on the purchase of goods for consumption
Solution:
Autonomous consumption expenditures refer to government spending that is not influenced by the level of income. When the government spends more, it increases the total spending in the economy, leading to an increase in the equilibrium GDP. The increase in autonomous consumption expenditure by the government of Rs 5,000 will lead to an increase in the equilibrium GDP by a certain amount. The increase in equilibrium GDP can be calculated using the multiplier formula:
Multiplier = 1 / (1 - MPC)
where MPC (Marginal Propensity to Consume) is the fraction of additional income that is spent on the purchase of goods for consumption.
Given that half of the income is always spent on the purchase of goods for consumption, MPC would be 0.5.
Therefore, the multiplier would be:
Multiplier = 1 / (1 - 0.5) = 2
Using the multiplier formula, we can determine the increase in equilibrium GDP:
Increase in Equilibrium GDP = Multiplier x Increase in Autonomous Consumption Expenditure
Increase in Equilibrium GDP = 2 x Rs 5,000 = Rs 10,000
Therefore, the increase in equilibrium GDP would be Rs 10,000 when autonomous consumption expenditures by the government increase by Rs 5,000.
Conclusion:
It can be concluded that an increase in autonomous consumption expenditures by the government led to an increase in equilibrium GDP. The increase in equilibrium GDP was determined using the multiplier formula, which takes into account the marginal propensity to consume. The multiplier formula is an important tool in determining the impact of changes in autonomous expenditures on the equilibrium GDP.
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If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion?
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If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion?.
If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If autonomous consumption expenditures by the government increases by rs 5,000.find increasse in equilibrium gdp when half of the income is always spent on the purchase of goods for consumpion?.
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