12th Class Economics Solved Paper - Economics 2014 Delhi Set-III

  • question_answer
    Calculate marginal propensity to consume from the following data about an economy which is in equilibrium:
    National Income = 1500
    Autonomous consumption expenditure = 300
    Investment expenditure = 300


    We know that in equilibrium,
    I is investment expenditure, given as 300
    Y is national income, given as 1500 and, \[C=\overline{C}+cY\]
    here, \[\overline{C}\] is autonomous consumption expenditure, given as 300, c is marginal propensity to consume. Thus, putting the values in the equation, we have \[Y=\overline{C}+cY+I\]
    or,        \[1500=300+c\times 1500+300\]
    or,        \[\frac{1500-600}{1500}=0.6\]
    Thus, marginal propensity to cinsume is 0.6.

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