Assertion (A): When C = 25 + 0.6Y, a rise in autonomous investment from 15 to 35 raises equilibrium income by 50, two and a half times the rise in investment.
Reason (R): Autonomous investment does not depend on the level of income.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): When C = 25 + 0.6Y, a rise in autonomous investment from 15 to 35 raises equilibrium income by 50, two and a half times the rise in investment. — True. Y rises from (25 + 15) / 0.4 = 100 to (25 + 35) / 0.4 = 150: a rise of 50 for a rise of 20 in investment.
Reason (R): Autonomous investment does not depend on the level of income. — True. Autonomous investment is the same at every level of income.
A is about how much income rises. R is about what investment depends on.
Why R does not explain A? R only tells us that the rise in investment is not caused by income. It says nothing about why income rises by more. The real reason is the multiplier: the extra income is partly spent in each round, so output rises round after round. Here the multiplier is 1 / (1 − 0.6) = 2.5, and 2.5 × 20 = 50.
NCERT (2026-27): “Investment Function – Graphical Representation In a two sector model, there are two sources of final demand, the first is consumption and the second is investment. The investment function was shown as I = Ī Graphically, this is shown as a horizontal line at a height equal to Ī above the horizontal axis. In this model, Ī is autonomous which means, it is the same no matter whatever is the level of income.” “4.3.3 The Multiplier Mechanism … The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy. Recalling that 10 and 0.8 represent the values of ΔI = ΔA and mpc, respectively, the expression for the multiplier can be explained as”
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