CA Foundation · Business Economics · Determination of National Income
An economy has C = 100 + 0.8Y and investment is induced as I = 50 + 0.1Y (₹ crore), with no government or foreign sector. What is the equilibrium level of income?
Equilibrium income is ₹1,500 crore. Setting Y equal to C plus I gives Y = 150 + 0.9Y, because induced investment adds 0.1 to the marginal spending rate. Solving, 0.1Y = 150, so Y = 1,500.
- A₹1,500 croreCorrect
- B₹1,000 crore
- C₹750 crore
- D₹500 crore
Explanation
Y = C + I = 100 + 0.8Y + 50 + 0.1Y = 150 + 0.9Y. So 0.1Y = 150 and Y = ₹1,500 crore. Check: C = 1,300, I = 200, total 1,500. Using only MPC 0.8 gives 150/0.2 = 750, ignoring induced investment.
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