In an economy, C = 30 + 0.75Y and autonomous investment rises from 20 to 40. Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Equilibrium income before the rise in investment | (I) | 4 |
| (B) | Equilibrium income after the rise in investment | (II) | 80 |
| (C) | Investment multiplier | (III) | 200 |
| (D) | Change in equilibrium income | (IV) | 280 |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
Given:
C = 30 + 0.75Y
Investment rises from 20 to 40
In equilibrium, Y = (C̄ + Ī) / (1 − c), and the multiplier is 1 / (1 − c).
| List-I | List-II | Reason |
|---|---|---|
| (A) Equilibrium income before the rise in investment | (III) 200 | (30 + 20) / 0.25 = 200 |
| (B) Equilibrium income after the rise in investment | (IV) 280 | (30 + 40) / 0.25 = 280 |
| (C) Investment multiplier | (I) 4 | 1 / (1 − 0.75) = 1 / 0.25 = 4 |
| (D) Change in equilibrium income | (II) 80 | 280 − 200 = 80, which is also 4 × 20 |
NCERT (2026-27): “4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output … Let C = 40 + 0.8Y , I = 10 . In this case, the equilibrium income (obtained by equation Y to AD ) comes out to be 2501. Now, let investment rise to 20. It can be seen that the new equilibrium will be 300. This can be seen by looking at the graph. This increase in income is due to rise in investment, which is a component of autonomous expenditure here. …” “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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