What is the new equilibrium income when the investment rises from 10 to 20 at a given consumption function:
C = 40 + 0.8Y
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 300
An economy settles where firms produce just as much as people plan to buy. So equilibrium income is the level at which planned output equals planned aggregate demand, Y = C + I. When investment rises from 10 to 20, demand rises, and income has to rise until it again equals demand.
Given:
Consumption function, C = 40 + 0.8Y
Investment rises from I = 10 to I = 20
Substituting the consumption function and the new investment in Y = C + I:
Y = 40 + 0.8Y + 20
Y − 0.8Y = 60
0.2Y = 60
Y = 60 ÷ 0.2 = 300, which is Option (1)
Option (2), 250, is the equilibrium before investment rose (0.2Y = 50).
Note 1: This question is the NCERT book’s own example of a change in investment, with the same consumption function and the same figures. Work through the solved examples of the book line by line; they come back in the exam.
Note 2: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 24-05 S1 | 30-05 S2* | – | – | – |
* A similar question.
NCERT: Introductory Macroeconomics — Chapter 4: Determination of Income and Employment (2025-26)
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