Statement I: If C̄ = 30, Ī = 20 and c = 0.6, the equilibrium income of the two-sector model is 80.
Statement II: In the two-sector model, the equilibrium income is Y = (C̄ + Ī)/(1 – c).
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Statement I is false but Statement II is true.
Statement I: If C̄ = 30, Ī = 20 and c = 0.6, the equilibrium income of the two-sector model is 80. — Incorrect. Y = (30 + 20) / (1 − 0.6) = 50 / 0.4 = 125. 80 comes from dividing by c instead of 1 − c.
Statement II: In the two-sector model, the equilibrium income is Y = (C̄ + Ī)/(1 – c). — Correct. From C̄ + Ī + cY = Y we get Y(1 − c) = C̄ + Ī.
NCERT (2026-27): “4.2 Determination of Income in Two-sector Model If the final goods market is in equilibrium this can be written as |