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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 2 · Q13
Suppose for two imaginary economies A and B, the values of Marginal Propensity to Save (MPS) stand at 0·2 and 0·4 respectively. For both the…
Suppose for two imaginary economies A and B, the values of Marginal Propensity to Save (MPS) stand at $\displaystyle 0$·$\displaystyle 2$ and $\displaystyle 0$·$\displaystyle 4$ 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 Save (MPS) = $\displaystyle 0.2$
Marginal Propensity to Consume (MPC) = $\displaystyle 1$ – MPS = $\displaystyle 1$ – $\displaystyle 0.2$ = $\displaystyle 0.8$
For economy B, Marginal Propensity to Save (MPS) = $\displaystyle 0.4$
Marginal Propensity to Consume (MPC) = $\displaystyle 1$ – MPS = $\displaystyle 1$ – $\displaystyle 0.4$ = $\displaystyle 0.6$
(a)
As we know, at break-even level for economy A; Y = C
Y = $\displaystyle \bar{c}$ + (MPC) x Y
Y = $\displaystyle 400$ + 0.8Y
Y = ₹ $\displaystyle 2,000$ crore
(b)
Equilibrium level of income for economy B; Y = C + I
Y = $\displaystyle \bar{c}$ + (MPC) x Y + I
Y = $\displaystyle 400$ + 0.6Y + $\displaystyle 2000$
Y = ₹ $\displaystyle 6,000$ 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.