Given that in an economy, consumption function is
C = 80 + 0.80Y and autonomous investment (I) = 120,
Match List-I with List-II
|
List-I |
List-II |
|
(A) Equilibrium level of income |
(I) 400 |
|
(B) Break-even point |
(II) 120 |
|
(C) Investment multiplier |
(III) 5 |
|
(D) Value of savings at equilibrium |
(IV) 1000 |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A)-(IV), (B)-(I), (C)-(III), (D)-(II)
|
List-I |
List-II |
|
(A) Equilibrium level of income |
(IV) 1000 |
|
(B) Break-even point |
(I) 400 |
|
(C) Investment multiplier |
(III) 5 |
|
(D) Value of savings at equilibrium |
(II) 120 |
Given:
Consumption function: C = 80 + 0.80Y
Autonomous investment: I = 120
At equilibrium, Y=C+I
Y=80 +0.80 Y + 120
Y− 0.80Y = 200
0.20Y = 200
Y = 1000
A. Equilibrium level of income = 1000 (IV)
At break-even, C = Y, so savings (S) = 0.
Y=80 + .80Y
Y− 0.80Y = 80
Y= 400
B. Break-even point = 400 (I)
Investment multiplier (k) = 1/ 1- MPC
= 1/ 1- 0.8
=1/0.2 = 5
At equilibrium, savings (S) = investment (I). = 120