question_answer

(i) Give three points of difference between intermediate goods and final goods.

(ii) Classify the following as intermediate good or final good:

[a] Car purchased by a taxi-operator for business use.

[b] Pen purchased by a retail dealer for selling in shop.

[c] Milk purchased by a sweet-maker for making sweets.

Or From the following data, calculate national income by income method and expenditure method.

S. No	Items	(Rs.) in crores
(i)	Interest	600
(ii)	Rent	1,000
(iii)	Government Final Consumption Expenditure	2,400
(iv)	Private Final Consumption Expenditure	4,800
(v)	Profits	2,560
(vi)	Compensation of Employees	4,000
(vii)	Net Factor Income of Abroad	120
(viii)	Net Indirect Taxes	240
(ix)	Net Exports	160
(x)	Consumption of Fixed Capital	200
(xii)	Net Domestic Formation	1,360

Answer:

It is given that, Income (Y) =Rs. 4,400, Marginal Propensity to Consume (MPC or b)=0.75 and Autonomous Consumption\[(\overline{C})=Rs.\,\,100\] We know that, Income (Y)=Consumption [C]+Savings (S)                                                             ...(i) Also, Consumption\[(C)=\overline{C}+bY,\]so,    \[\Rightarrow \]           \[Y=\overline{C}+bY+S\]                                                                        ...(ii) On substituting the given variables in Eq (ii), we get             \[4,400=100+0.75\times 4,400+S\] or         \[4,400=3,400+S\] \[\Rightarrow \]   S=Rs. 1,000 At equilibrium level, Savings = Investments \[\therefore \] Investments =Rs. 1,000 i.e. Savings and Investments at equilibrium level of income =Rs.1,000                              Yes, I think that the concept of autonomous consumption is valid in real life because every individual needs a minimum consumption level to sustain himself, even if his income is zero.