CA Foundation · Business Economics · Determination of National Income
In an economy, the consumption function is C = 200 + 0.75Y and planned investment is ₹400 crore. What is the equilibrium level of national income (in ₹ crore)?
Equilibrium national income is ₹2,400 crore. Setting Y equal to 200 + 0.75Y + 400 gives 0.25Y = 600, so Y = 600 divided by 0.25, which is 2,400. The multiplier of 4 applies to total autonomous spending of ₹600 crore.
- A800
- B1,600
- C2,400Correct
- D3,200
Explanation
Equilibrium Y = C + I = 200 + 0.75Y + 400, so 0.25Y = 600 and Y = 2,400. Option 1,600 results from dividing 600 by 0.375 incorrectly, and 800 from dividing 600 by 0.75 (using MPC instead of MPS).
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