If in an economy, the Investment Multiplier ...

CBSE 2023 Class 12 Economics Delhi Set 1

Question : 7 of 49

Marks: +1, -0

If in an economy, the Investment Multiplier is 4 and Autonomous Consumption is

\text{₹}\,30

crore, the relevant consumption function would be ________.

(Fill up the blank with correct alternative)

Solution:

(a)

C=30+0.75 Y

Explanation: Investment Multiplier

(k)=4

Autonomous Consumption

(\overline{C})=\text{₹}\,30

crore

K\;=\;\frac{1}{1 - MPC}

4\;=\;\frac{1}{1 - MPC}

MPC\;=\;\frac{1}{4}

MPC\;=0.25

MPC\;=1-0.25

MPC\;=0.75

Consumption Function:

\; C = \overline{C} + MPC(Y)

\; C = 30 + 0.75 Y

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