The consumption function is given as:
\(C=\bar { C } +cY\)
\(c=MPC\)
Substituting appropriate Values in (I), we get;
\(C=200+\left( 0.5\times 1000 \right) \)
\( =200+500\)
\(=700\)
Thus, the total consumption expenditure is 700

Lack of fiscal discipline often causes greater flow of money as compared to the flow of goods.It may lead to unconstrained demand, thereby causing reportedly high deficits and a significant rise in the ratio of tax revenue and public expenditure to GDP.

Deficient demand has following effcts:
 (i) Effect on Output: Deficient demand exists due to underemployment in an economy. Some resources remain unemployment and hence, output level is low.
(ii) Effects of Employment: Deficient demand cause level of investment to fall. As a result, there is involuntary unemployment in the economy, which decreases the level of employment.
(iii) Effects on Prices: Due to deficient demand prices tend to all.

Average Propensity to Consume (APC) is the ratio of total consumption (C) to total income (Y).
\(APC=\frac { C }{ Y } \)
Marginal Propensity to Consume (MPC) is the ratio of change in consumption to the change in income. It is the slope of the consumption function.
\(MPC=\frac { \Delta C }{ \Delta Y } \)
The value of APC can be greater than one when current consumption exceeds current income.

Following are the points of difference between ex-ante investment and ex-post investment: 

(i) The consumption function and investment are given as
C = 100 + 0.75Y     ...(1)
1 = 1,000       ....(2)
Equilibrium level of National Income is determined as:
Y = C + 1  ...(3)
Substituting appropriate values in (3); we get
Y = 100 + 0.75Y + 1000
Y - 0.75Y = 1,100
0.25Y = 1,100
Y = 4,400
Thus, the equilibrium level of National Income is RS. 4,400.
(ii) Substituting Y = 4400 in (1); we get
C = 100 + 0.75(4,400)
= 100 + 3,300
= 3,400
Thus, the consumption expenditure at equilibrium level of National Income is RS. 3,400.

Change in investment;\(\Delta 1\) = RS. 200 crores
Change in income;\(\Delta Y\) = RS. 1,000 crores
The investment multiplier (K) is calculated as
\(K=\frac { \Delta Y }{ \Delta 1 } \)
Substituting the appropriate values; we get
\(K=\frac { 1,000 }{ 200 } \)
= 5
The relationship between investment multiplier and Marginal Propensity to Consume (MPC) is given
as
\(K=\frac { 1 }{ 1-MPC } \)
Thus,  \(5=\frac { 1 }{ 1-MPC } \)
5 - 5MPC = 1
5MPC = 5 - 1
5MPC = 4
MPC = 0.8
Thus, the Marginal Propensity to Consume (MPC) is 0.8.

Deflationary gap refers to the excess of available supply of output over the anticipated expenditure at constant prices of base period. It is also known as deficient demand.
Inflationary gap, on the other hand, refers to the excess of anticipated expenditure over the available supply of output at constant prices of base period. It is also known as excess demand.
Following are the two measures that can be used to correct the problem of deflationary and inflationary gap:
(i) Bank Rate: Bank rate is the minimum rate at which the central bank discounts the first class bills of exchange and provides credit to the commercial banks.'The central bank increases the bank rate to correct the situation of inflationary gap or excess-demand in the economy. Higher bank rate reduces the lending capacity of the commercial banks as they get funds at a higher interest rate from the central bank. Consequently, money supply contracts in the economy as the public borrows less at high rate of interest and Aggregate Demand falls. Similarly, the central bank decreases the bank rate to correct the situation of deflationary gap or deficient demand in the economy. Lower bank rate increases the lending capacity of the commercial banks as they get funds at a lower interest rate from the central bank Consequently, money supply expands in the economy as public borrows more at low rate of interest and Aggregate Demand rises.
(ii) Open Market Operations: Open market operation is the policy of the central monetary authority to sell and buy the government securities in the market. The central bank sells government securities to commercial banks and general public in a bid to correct the situation of inflationary gap or excess demand. This decreases the stock of high powered money in the economy. As a result, the purchasing power of the people declines, which decreases the Aggregate Demand in the economy. Similarly, the central bank purchases government securities from commercial banks and general public in a bid to correct the situation of deflationary gap or deficient demand. This increases the stock of high powered money in the economy. As a result, the purchasing power of the people increases, which increases the Aggregate Demand in the economy.

Investment multiplier (K) expresses the relationship between the final change in income and the initial change in investment. It is estimated as the ratio of change in income due to change in investment. A change in investment causes a 'multiple' change in the output.
\(K=\frac { \Delta I }{ \Delta Y } \)
Or;  \(\Delta I=K\times \Delta Y\)
There is a direct relationship between investment multiplier and Marginal Propensity to Consume (MPC). The extent of the effect of multiplier depends upon MPC. Higher the MPC. higher will be the value of multiplier. The relationship between investment multiplier and MPC can be expressed with the help of the following equation:
\(K=\frac { I }{ I-MPC } \)
Since the value of MPC lies between 0 and I \((0\le MPC\le I)\) , the value of multiplier will always be greater than one.
Numerical Example: Assume that the MPC is 4/5. Further, suppose that there is an increased investment worth RS. 1,000, which results in the construction of a new building. This implies that the builder, the architect and the laborers together get an increase in income of RS. 1,000. Since the MPC is 4/5, they will together spend RS. 800 \((4/5\times 1,000)\) on new consumption of goods. The producers of those consumption goods will, thus, have an increase of RS. 800 in their incomes. Since their MPC is also 4/5, they will, in turn, spend RS. \(640(4/5\times RS.800)\) . This will cause an increase in the income of other people by RS. 640. This process will go on. An endless chain of the secondary consumption spending is set in motion by the primary investment of RS. 1,000.
To determine the total increase in output of the final goods and services, we add up the infinite geometric series as:
\(\Delta Y=1,000+\left( \frac { 4 }{ 5 } \right) \times RS.1,000+\left( \frac { 4 }{ 5 } \right) ^{ 2 }\times RS.1,000+.......+\infty\)
\( \ =RS.1,000\left( \frac { 1 }{ 1-\frac { 4 }{ 5 } } \right) \)
Thus, an increase in investment worth RS. 1,000, increases the income by RS. 5,000. That is, a change in investment has caused 5 times increase in income (output). Thus, the value of investment multiplier is 5. It can be verified as below:
Investment Multiplier;
\(K=\frac { I }{ I-MPC } = \frac { I }{ I-\frac { 4 }{ 5 } } \)
\(=\frac { 5 }{ 5-4 } \ \ =5\)

Investment means addition to the stock of capital goods in the nature of structures, equipment or inventory.
The equilibrium is determined at the level of income where Aggregate Demand is equal to the Aggregate Supply. That is,
We know that,
AD = AS     ...( 1)
AD = C + I     ...(2)
AS = C + S   ...(3)
By substituting (2) and (3) in (I), we get;
C + I = C + S
Or;  I = S
Thus, the equilibrium level of income and output is attained when planned saving (S) and planned investment (I) are equal. The determination of equilibrium level of income using saving-investment approach can be explained with the help of a schedule.

In the schedule, S is the planned saving at different levels of income and I is the investment as given and constant at 10'0.Planned saving and investment are equal (S = I = 100) at income level of 300. At this level of income, Aggregate Demand is also equal to Aggregate Supply, that is,
Y = AD = AS = 300
At the income level of 200, planned saving is less than planned investment (50 < 100). It implies that at this level of income, what businessmen plan to invest is more than what households plan to save.There is a situation of excess demand in the economy. Thus, producers will decrease inventory and output would expand until equilibrium is attained. Similarly, at the income level of 400, planned saving is greater than planned investment (150 > 100). It implies that at this level of income, what businessmen plan to invest is less than what households plan to save.There is a situation of deficient demand in the economy. Thus, producers will increase inventory and output would contract until equilibrium is attained.

Marginal Propensity to Consume (MPC) is the ratio of change in consumption to the change in income.
\(MPC=\frac { \Delta C }{ \Delta Y } \)
Marginal Propensity to Save (MPS) is the ratio of change in savings to the change in income.
\(MPS=\frac { \Delta S }{ \Delta Y } \)
The sum of the propensity to consume and propensity to save is always equal to one.
MPC + MPS = I
Or; MPC = I - MPS
Or;  MPS = I - MPC
MPC and MPS are inversely related. Higher the propensity to consume lower will be the propensity to save and vice-versa. For example, suppose propensity to consume is 0.80. The propensity to save will be
MPS = I - 0.80
= 0.20
If propensity to consume falls to 0.40, then the propensity to save will be
MPS = I - 0.40
= 0.60

Fiscal policy refers to the revenue and expenditure policy of the government to achieve balance in the development of the economy.
Following fiscal policy measures can be taken to reduce excess demand in the economy:
(i) Decrease in Government Expenditure: The government should reduce its unnecessary expenditure in order to check excess demand. Transfer payments should be decreased.
(ii) Increase in Taxes: To correct excess demand, the government should levy new taxes and enhance the rate of existing taxes.
(iii) SurplusBudget Policy: lessthanIt is necessary that government expenditure should be less than its income in order to correct excess demand.