Question : Assertion: In the context of equilibrium, desired investment expenditure is assumed to be autonomous.
Reason: Autonomous investment is income elastic.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer:
Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Solution : The correct answer is (B) Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Assertion states that in the context of equilibrium, desired investment expenditure is assumed to be autonomous. This assertion is correct.In the context of equilibrium analysis, desired investment expenditure is often assumed to be autonomous, meaning it is not influenced by changes in income or output levels. It is considered a fixed component of aggregate demand and is independent of the level of income.
Reason states that autonomous investment is income elastic. This reason is incorrect. Autonomous investment refers to investment expenditure that is not influenced by changes in income. It is unrelated to income levels and is often considered a fixed component of aggregate demand. Therefore, it is not income elastic, as changes in income do not affect the level of autonomous investment.
Therefore, the correct answer is (B) Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
