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Question
"In an economy, the autonomous consumption is ₹ 100 and Marginal Propensity to Consume (MPC) is 0.6. If the equilibrium level of Income is 2,000, then the autonomous investment is ₹ 300." Justify the statement with valid calculation.
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Solution
Given Information:
Autonomous consumption `bar("C")` = 100
MPC = 0.6
Equilibrium level of Income (Y) = ₹ 2000
Autonomous Investment (I) = ₹ 300
At equilibrium level, Y = C + I
Thus, ₹ 2000 = ₹ 1300 + I
I = ₹ (2000 - 1300)
I = ₹ 700
At this level of income, Y should be ₹ 700 but it is given ₹ 300 which is not valid.
Working Note:
C = `bar("C")` + bY
= ₹ 100 + 0.6 (2000)
= ₹ 100 + 1200
= ₹ 1300
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| S.No. | Particulars | Amount (In ₹ crores) |
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| (vi) | Net Indirect Taxes | 2,000 |
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| (viii) | Wages & Salaries | 15,000 |
| (ix) | Net Exports | 5,000 |
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| (xi) | Consumption of Fixed Capital | 3,000 |
| (xii) | Operating Surplus | 30,000 |
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