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Economics · 2022 · 2 marks
Determination of Income and EmploymentDetermination of Income in Two-sector Model2 marksApplyvery short answer
CBSE 2022 · Region 5 · Set 2 · Q3
(a) "In an economy, the autonomous consumption is ₹ 100 and Marginal Propensity to Consume (MPC) is 0.6. If the equilibrium level of Income is 2,000,…
(a)
"In an economy, the autonomous consumption is ₹ $\displaystyle 100$ and Marginal Propensity to Consume (MPC) is 0.6. If the equilibrium level of Income is $\displaystyle 2{,}000$, then the autonomous investment is ₹ 300."
Justify the statement with valid calculation.
OR
(b)
An Economy is in equilibrium, calculate the Marginal Propensity to Save (MPS) from the following :
(i)
National Income (Y) = ₹ $\displaystyle 4{,}400$
(ii)
Autonomous Consumption ($\displaystyle \bar{C}$) = ₹ $\displaystyle 1{,}000$
(iii)
Investment Expenditure (I) = ₹ $\displaystyle 70$
Marking-scheme solution
Given, Autonomous Consumption ($\displaystyle \bar{C}$) = ₹ $\displaystyle 100$
Marginal Propensity to Consume = $\displaystyle 0$·$\displaystyle 6$
Equilibrium level of Income (Y) = ₹ $\displaystyle 2{,}000$
We know that at equilibrium level, Y = C + I; $\displaystyle Y = \bar{c} + MPC(Y) + \bar{I}$
$\displaystyle 2,000 = 100 + 0\cdot6\ (2,000) + \bar{I}$
$\displaystyle 2,000 = 1300 + \bar{I}$
$\displaystyle \bar{I}$ = ₹ $\displaystyle 700$
Thus, it is proved that the given statement is false. Because the correct value of Autonomous Investment is ₹ 700.
Given, National Income = ₹ $\displaystyle 4{,}400$
Autonomous Consumption = ₹ $\displaystyle 1{,}000$
Investment Expenditure = ₹ $\displaystyle 70$
We know that at equilibrium level, Y = C + I; $\displaystyle Y = \bar{c} + MPC(Y) + \bar{I}$
$\displaystyle 4,400 = 1,000 + MPC(4,400) + 70$
MPC = $\displaystyle 0$·$\displaystyle 76$
MPS = $\displaystyle 1$ - $\displaystyle 0.76$ = $\displaystyle 0.24$ (MPS = $\displaystyle 1$ - MPC)
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