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Economics · 2025 · 4 marks
Determination of Income and EmploymentDetermination of Income in Two-sector Model4 marksApplyshort answer
CBSE 2025 · Region 5 · Set 3 · Q15
Suppose for two imaginary economies A and B, the value of Marginal Propensity to Consume (MPC) stands at 0·5 and 0·8 respectively. For both the…
Suppose for two imaginary economies A and B, the value of Marginal Propensity to Consume (MPC) stands at $\displaystyle 0$·$\displaystyle 5$ and $\displaystyle 0$·$\displaystyle 8$ respectively.
For both the economies, Autonomous Consumption ($\displaystyle \bar{c}$) = ₹ $\displaystyle 400$ crore and Investment Expenditure (I) = ₹ $\displaystyle 2,000$ crore.
Calculate the following :
(a)
Break-even level of income for Economy A.
(b)
Equilibrium level of income for Economy B.
Marking-scheme solution
Given,
Autonomous Consumption ($\displaystyle \bar{c}$) = ₹ $\displaystyle 400$ crore
Investment expenditure (I) = ₹ $\displaystyle 2000$ crore
For economy A, Marginal Propensity to Consume (MPC) = $\displaystyle 0.5$
For economy B, Marginal Propensity to Consume (MPC) = $\displaystyle 0.8$
(a)
As we know, at break-even level for economy A; Y = C
$$Y = \bar{c} + (MPC)\,Y$$
$$Y = 400 + 0.5Y$$
$$Y = ₹\,800 \text{ crore}$$
(b)
Equilibrium level of income for economy B; Y = C + I
$$Y = \bar{c} + (MPC)\,Y + I$$
$$Y = 400 + 0.8Y + 2000$$
$$Y = ₹\,12{,}000 \text{ crore}$$
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CBSE Class 12 Economics past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.