Calculate equilibrium level of income for a hypothetical economy, for which it is given that: a) Autonomous Investments = ₹ 500 crores,

Question

Calculate equilibrium level of income for a hypothetical economy, for which it is given that: a) Autonomous Investments = ₹ 500 crores,

Calculate equilibrium level of income for a hypothetical economy, for which it is given that:

a) Autonomous Investments = ₹ 500 crores, and

b) Consumption function, C = 100 + 0.80Y

Or

Calculate Change in Income (ΔY) for a hypothetical economy. Given that:

a) Marginal Propensity to Consume (MPC) = 0.8, and

b) Change in Investment (ΔI) = ₹1,000 crores

Monjur Alahi

5 views

2025-01-04 04:42

1 Answers

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Salim Ahmed Kawsar · Accepted Answer · 2023-02-05T15:29:48+06:00

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