question_answer

The value of marginal propensity to consume is 0.6 and initial income in the economy is Rs. 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of Rs 80 crores.

Answer:

Given that,
Marginal propensity to consume (MPC) =0.6
Initial income = Rs. 100 crores
Autonomous investment = Rs. 80 crores
\[C=\overline{C}+c\left( Y \right)\]
C=0+0.6(Y)
Income (Rs.)	Consumption	Saving (Rs.)	Investment
100	60	40	80
200	120	80	80
300	180	120	80
400	240	160	80
500	300	200	80
Aggregate Demand (AD) = Aggregate Supply (AS)
AD = C + 1 and AS = C + S
Therefore, the equilibrium level of income is Rs. 200 crores.