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:
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:
Solution
(A) - (IV), (B) - (I), (C) - (III), (D) - (II) -> Given C = 80 + 0.80Y and I = 120:
(A) Equilibrium level of income: At equilibrium, Y = C + I. So Y = 80 + 0.80Y + 120, which gives Y = 200 + 0.80Y. Solving: 0.20Y = 200, therefore Y = 1000 → matches with (IV).
(B) Break-even point: This occurs where consumption equals income (C = Y), meaning savings = 0. So Y = 80 + 0.80Y, which gives 0.20Y = 80, therefore Y = 400 → matches with (I).
(C) Investment multiplier: Multiplier = 1/(1-MPC) = 1/(1-0.80) = 1/0.20 = 5 → matches with (III).
(D) Value of savings at equilibrium: Savings S = Y - C = Y - (80 + 0.80Y) = 0.20Y - 80. At equilibrium Y = 1000, S = 0.20(1000) - 80 = 200 - 80 = 120 → matches with (II).
Hence, Option 3: (A) - (IV), (B) - (I), (C) - (III), (D) - (II) -> This correctly matches all four components: equilibrium income is 1000 (where aggregate demand equals aggregate supply), break-even point is 400 (where households neither save nor dissave), investment multiplier is 5 (showing a ₹1 change in investment leads to ₹5 change in income), and savings at equilibrium is 120 (which equals autonomous investment, satisfying the equilibrium condition S = I) -> correct
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