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Calculate equilibrium level of income for a hypothetical economy, for which it is given that: a) Autonomous Investments = ₹ 500 crores, andb) Consumption function, C = 100 + 0.80YOrCalculate Change in Income (ΔY) for a hypothetical economy. Given that:a) Marginal Propensity to Consume (MPC) = 0.8, andb) Change in Investment (ΔI) = ₹1,000 crores |
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Answer» Given Consumption function is, C=100+0.8 Y Autonomous investments = 500 crores We know, at equilibrium level Y = C+I Y = 100+0.8 Y+500 Y-0.8Y = 600 0.2 Y = 600 Y = ₹ 3,000 crores Or Given Δ I = ₹1,000 crores MPC = 0.8 As we know, Multiplier (K) = \(\frac{1}{1-MPC}\) = \(\frac{1}{1-0.8}\)= \(\frac{1}{0.2}\) = 5 times We know K = \(\frac{ΔY}{Δ1}\) 5 = \(\frac{ΔY}{1000}\) ΔY = ₹ 5,000 crores |
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