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In an economy if equilibrium level of national is Rs. 2,000 crores. Autonomous consumption = Rs. 400 crores and Investment expenditure = Rs. 200 crores, then MPC will be:
- a)1.2
- b)0.2
- c)0.7
- d)0.9
Correct answer is option 'C'. Can you explain this answer?
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In an economy if equilibrium level of national is Rs. 2,000 crores. Au...
Y = C + I
2000 = (400 + b × 2000) + 200
2200 = 400 + 2000 × b
b = 2000/1800
b = 0.9
2000 = (400 + b × 2000) + 200
2200 = 400 + 2000 × b
b = 2000/1800
b = 0.9
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In an economy if equilibrium level of national is Rs. 2,000 crores. Au...
Equilibrium level of national income:
The equilibrium level of national income is the level at which aggregate demand (AD) equals aggregate supply (AS) in an economy. It represents the level of output where there is no tendency for further changes in income.
Autonomous consumption:
Autonomous consumption refers to the minimum level of consumption expenditure that occurs even when there is no income. It is the consumption that individuals or households undertake regardless of their income level. In this case, the autonomous consumption is Rs. 400 crores.
Investment expenditure:
Investment expenditure refers to the spending by firms on capital goods, such as machinery and equipment, which adds to the productive capacity of the economy. In this case, the investment expenditure is Rs. 200 crores.
Calculating equilibrium level of national income:
To calculate the equilibrium level of national income, we need to consider the aggregate demand (AD) and aggregate supply (AS) in the economy.
AD = C + I
where C is consumption expenditure and I is investment expenditure.
In equilibrium, AD equals AS:
AD = AS
Given that autonomous consumption is Rs. 400 crores and investment expenditure is Rs. 200 crores, we can calculate the equilibrium level of national income.
AD = C + I
AD = 400 + 200
AD = 600 crores
Equating AD with AS:
AD = AS
600 = AS
Therefore, the equilibrium level of national income is Rs. 600 crores.
Calculating marginal propensity to consume (MPC):
MPC is the ratio of the change in consumption to the change in income. It represents the proportion of additional income that is consumed rather than saved.
MPC = Change in consumption / Change in income
Given that the autonomous consumption is Rs. 400 crores, we can calculate the MPC.
MPC = Change in consumption / Change in income
MPC = 400 / 2000
MPC = 0.2
Therefore, the MPC is 0.2.
Conclusion:
In this economy, with an equilibrium level of national income of Rs. 2000 crores, autonomous consumption of Rs. 400 crores, and investment expenditure of Rs. 200 crores, the marginal propensity to consume (MPC) is 0.2.
The equilibrium level of national income is the level at which aggregate demand (AD) equals aggregate supply (AS) in an economy. It represents the level of output where there is no tendency for further changes in income.
Autonomous consumption:
Autonomous consumption refers to the minimum level of consumption expenditure that occurs even when there is no income. It is the consumption that individuals or households undertake regardless of their income level. In this case, the autonomous consumption is Rs. 400 crores.
Investment expenditure:
Investment expenditure refers to the spending by firms on capital goods, such as machinery and equipment, which adds to the productive capacity of the economy. In this case, the investment expenditure is Rs. 200 crores.
Calculating equilibrium level of national income:
To calculate the equilibrium level of national income, we need to consider the aggregate demand (AD) and aggregate supply (AS) in the economy.
AD = C + I
where C is consumption expenditure and I is investment expenditure.
In equilibrium, AD equals AS:
AD = AS
Given that autonomous consumption is Rs. 400 crores and investment expenditure is Rs. 200 crores, we can calculate the equilibrium level of national income.
AD = C + I
AD = 400 + 200
AD = 600 crores
Equating AD with AS:
AD = AS
600 = AS
Therefore, the equilibrium level of national income is Rs. 600 crores.
Calculating marginal propensity to consume (MPC):
MPC is the ratio of the change in consumption to the change in income. It represents the proportion of additional income that is consumed rather than saved.
MPC = Change in consumption / Change in income
Given that the autonomous consumption is Rs. 400 crores, we can calculate the MPC.
MPC = Change in consumption / Change in income
MPC = 400 / 2000
MPC = 0.2
Therefore, the MPC is 0.2.
Conclusion:
In this economy, with an equilibrium level of national income of Rs. 2000 crores, autonomous consumption of Rs. 400 crores, and investment expenditure of Rs. 200 crores, the marginal propensity to consume (MPC) is 0.2.
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In an economy if equilibrium level of national is Rs. 2,000 crores. Autonomous consumption = Rs. 400 crores and Investment expenditure = Rs. 200 crores, then MPC will be:a)1.2b)0.2c)0.7d)0.9Correct answer is option 'C'. Can you explain this answer?
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