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CBSE 2014 Class 12 Economics Delhi Set-2

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Question : 3 of 4
Marks: +1, -0
Calculate autonomous consumption expenditure from the following data about an economy which is in equilibrium.
National income =(1200)=\begin{pmatrix}1 & 2 & 0 & 0\end{pmatrix}
Marginal propensity to save =0.20=0.20
Investment expenditure =100=100
Solution:  
We have,
Y=C+IY=C+I
where,
II is investment expenditure which is given as 100. YY is income which is given as 1200 and, CC =C‾+cY=\overline{C}+cY here, C‾\overline{C} is autonomous consumption expenditure is marginal propensity to consumer, c=1c=1 - marginal propensity to consume (mps) so, c=1−0.20=0.80c=1-0.20=0.80. Thus, putting the values in the equation, Y=C−+cY+IY=\overset{-}{C}+cY+I or, 1200=C‾+1200=\overline{C}+ 0.80×1200+1000.80 \times 1200+100 or, C‾=1200−1060=140\overline{C}=1200-1060=140. Thus, autonomous consumption expenditure is 140 .
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