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Question : 14
Total: 19
An economy is in equilibrium. Calculate national income from the following.
Autonomous consumption= 100
Marginal propensity to save= 0.2
Investment expenditure= 200
Autonomous consumption
Marginal propensity to save
Investment expenditure
Solution:
Given
Autonomous consumption( C ) = 100
MPS ( s ) = 0.2
i.e.MPC ( c ) = 1 − MPS = 1 − 0.2 = 0.8
1 = 200
y = ?
We know that at equilibrium,
Y = C + I
i.e. Y = ( C ) + cY + I
⇒ Y = 100 + 0.8 Y + 200
⇒ Y = 0.8 Y + 300
⇒ Y − 0.8 Y = 300
⇒ 0.2 Y = 300
so, Y = 1 , 500
Autonomous consumption
i.e.
We know that at equilibrium,
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