Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is Rs 80 crores, and MPC is 0.75.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 320 crore
We are given:
Autonomous expenditure (A) = ₹80 crores
Marginal Propensity to Consume (MPC) = 0.75
At equilibrium, AD=Y
Y= [1 / (1 - MPC)] * A
Multiplier= 1 / (1 - MPC) = 1/0.25 = 4
Y= 4 * 80 = 320