National Income Accounting and Investment

National income accounting is a method used to measure the total value of goods and services produced in an economy over a specific period of time. It provides a comprehensive view of the economic activities within a country and helps in understanding the overall health and performance of the economy. One of the key components of national income accounting is investment.

Components of National Income

National income (Y) can be divided into four components: consumption (C), investment (I), government spending (G), and net exports (X - M). The equation for national income can be represented as:

Y = C + I + G + (X - M)

In this equation, consumption represents the total spending by households on goods and services, investment represents the spending on capital goods and infrastructure, government spending represents the expenditure by the government, and net exports represent the difference between exports and imports.

Autonomous Consumption and Marginal Propensity to Consume

Autonomous consumption refers to the minimum level of consumption that occurs even when there is no income. It represents the basic needs and necessities that individuals or households have to fulfill. In this case, autonomous consumption is given as Rs. 150 crore.

Marginal Propensity to Consume (MPC) is the proportion of additional income that is spent on consumption. It represents the change in consumption for a given change in income. In this case, the MPC is given as 0.70, which means that for every additional rupee of income, 70% is spent on consumption.

Calculating Investment

To calculate investment, we need to use the given information about national income, autonomous consumption, and MPC.

1. Subtract autonomous consumption from national income:
Y - C = Rs. 600 crore - Rs. 150 crore = Rs. 450 crore

2. Multiply the result by the MPC to find the portion of income that is spent on consumption:
(Y - C) * MPC = Rs. 450 crore * 0.70 = Rs. 315 crore

3. Finally, subtract the result from step 2 from the total national income to find investment:
I = Y - C - (Y - C) * MPC
I = Rs. 600 crore - Rs. 150 crore - Rs. 315 crore
I = Rs. 135 crore

Therefore, the investment in the economy is Rs. 135 crore.

Investment=30cr.