Formula :
1. Coefficient of Multiplier (K) = 1⁄1-MPC
or, (K)= 1/mps
or, K = Change in income / Change in investment
2. Marginal Propensity to Consume (MPC) = Change in Consumption/ Change in income
or, MPC= 1-MPS
3. Y=C+I (for Equilibrium level of income )
or Y= C+I+G when Government is involve
4. APC= C⁄Y
5. APS= S ⁄Y
6. MPS= Change in saving / Change in income
7= Investement=Saving
8. Saving = Income - Consumption
9. MPC+MPS = 1
10. when C is given as C= 200+0.5y here 0.5 is MPC
11. When S is given as S = 200+0.5y here 0.5 is MPS
Old is GOld Solution 2078/79
18. 2077 Q.N.10 Compelete the table :
Income Consumption Saving
0 40 -
100 120 -
200 200 -
300 280 -
400 360 -
500 440 -
Solution :
Income (Y) Consumption (C) Saving = Y-C
0 40 -40
100 120 -20
200 200 0
300 280 20
400 360 40
500 440 60
19. 2075 Q.N.3 The consumption function of an economy is given C = 60 + 0.8y where y is national income. If the investment in a year equals to 65 crore, what will be the equilibrium level of national income.
Solution :
Consumption (C) = 60 + 0.8y
Investment (I) = 65 crore
We know, equilibrium level of national income is given by ;
Income (y) = Consumption (C) + Investment (I)
y = 60 + 0.8y + 65
y - 0.8y = 65
y = 65⁄0.2
y = 325 Crore
Therefore, the equilibrium level of national income is 325 Crore.
20. 2074 Q.N.3 Find out the rate of MPS & Multiplier when MPC is 0.75.
Solution :
MPC = 0.75
we know,
MPS = 1 - MPC
= 1- 0.75
MPS = 0.25
Again,
Multiplier (K) = 1⁄1-MPC or, 1⁄MPS
= 1⁄0.25
= 4
Therefore, the rate of MPS is 0.25 & Multiplier is 4.
21. 2074 Q.N. 10 Let in an economy, autonomous investment (Ia) = Rs 600 million and Consumption function (c) = 200 + 0.8y. Compute the equilibrium level of income & Consumption.
Solution :
Autonomous Investment (Ia) = Rs 600 million
Consumption function (C) = 200 + 0.8y
we know, equilibrium level of income is given by
y = C + Ia
or, y = 200 + 0.8y + 600
or, y - 0.8y = 800
or, 0.2y = 800
or, y = 800/0.2
y= 4000 million
now putting the value of y in C = 200 + 0.8y we get,
C = 200 + 0.8 * 4000
C = 200 + 3200
C= 3400
Therefore, equilibrium income is 4000 million & Consumption is 3400 million.
Descriptive question :
37. 2077 Qn 15 let the consumption function & investment function in an economy are :
c = 40 + 0.7y, I = 20
a. Compute the equilibrium income, consumption & investment.
b. What will be the new equilibrium income, consumption, investment when investment increases by Rs 5 million ?
Solution,
a) c = 40 + 0.7y
I = 20
For equilibrium income,
y = c + I
or, y = 40 + 0.7y + 20
or, y - o.7y = 60
or, 0.3y = 60
or, y = 60/0.3
y = 200 million
Again, for consumption,
c = 40 + 0.7y
or c = 40 + 0.7*200 [ y = 200 million ]
or, c = 40 + 140
c = 180 million
Again, For investment
I = y - c
or I = 200 - 180
I = 20 million
b) If investment increases by 5 million
New investment (I)new = 20 + 5 = 25 million
Now, new equilibrium income is given by
(y)new = (c) + (I)new
y = 40 + 0.7y + 25
0.3y = 65
(y)new = 65/0.3 = 216.67 million
Again, for new consumption,
(c)new = 40 + 0.7(y)new
= 40 + 0.7* 216.67
= 40 + 151.67
(c)new = 191.67 million
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