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Suppose autonomous investment and consumption expenditure (A) in a hypothetical economy is ₹50 crores. MPS is 0.2 and the level of income is ₹4000 crores. The value of ex-ante aggregate demand would be _________

Solution

✅ Correct Option: 3

Using the ex-ante aggregate demand formula:

AD=A+MPC×YAD = A + MPC \times Y


Since every extra rupee of income is either spent or saved, MPC+MPS=1MPC + MPS = 1

MPC=1−MPSMPC = 1 - MPS

MPC=1−0.2=0.8MPC = 1 - 0.2 = 0.8


Substituting A=₹50 croresA = ₹50 \text{ crores}, MPC=0.8MPC = 0.8, and Y=₹4000 croresY = ₹4000 \text{ crores}:

AD=50+0.8×4000AD = 50 + 0.8 \times 4000

AD=50+3200AD = 50 + 3200

AD=₹3250 crores\boxed{AD = ₹3250 \text{ crores}}

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