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CA Foundation · Business Economics · Determination of National Income

In a three-sector economy with no foreign trade, C = 100 + 0.8Yd, I = ₹300 crore, G = ₹200 crore, and taxes are a lump sum T = ₹100 crore. What is the equilibrium national income (in ₹ crore)?

Equilibrium income is ₹2,600 crore. Substituting disposable income Y − 100 into consumption gives total spending of 520 + 0.8Y, so 0.2Y = 520. The lump-sum tax lowers autonomous spending by MPC times tax, which is ₹80 crore, so the answer is below 3,000.

  1. A2,600Correct
  2. B2,900
  3. C3,000
  4. D3,500

Explanation

Y = C + I + G = 100 + 0.8(Y − 100) + 300 + 200 = 520 + 0.8Y. So 0.2Y = 520 and Y = 2,600. Ignoring the tax effect would give 600/0.2 = 3,000, which is the key distractor; the lump-sum tax reduces autonomous spending by 0.8 × 100 = 80.

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