(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. |
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.
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