ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If income increases from 2500 to 3900 and autonomous investment increases by 350, the MPC should be: ???? 0.75 is exact answer.

Detailed explanation-2: -In an economy MPC is 0.75. If investment expenditure increases by 500 crores, calculate total increase in income and consumption expenditure. Total increase in income = Increase in investment x K = 500 x 4 = 2, 000 crores. Total increase in consumption expenditure = 0.75 of 2, 000 = 1, 500 crores.

Detailed explanation-3: -When autonomous investment increases (from 15 to 20), AD1 line shifts upward and assumes the position of A2 line which intersects 45° line at E2 making it a new equilibrium point. In Fig. 8.13 the value of aggregate demand at OM1 is M1F which is greater than M1E1 by amount E1F.

Detailed explanation-4: -False. While investment is autonomous, increase in income is induced through increase in expenditure.

Detailed explanation-5: -To calculate autonomous consumption, the following formula is used: Autonomous consumption= consumer spending-marginal propensity to consume (total income / consumed income) x disposable income.