© examsnet.com
Question : 10
Total: 16
The value of marginal propensity to consume is 0.6 and initial income in the economy is ₹ 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of ₹ 80
Solution:
Given that,
Marginal propensity to consume( MPC ) = 0.6
Initial income= ₹ 100
Autonomous investment= ₹ 80
C = C + c ( Y )
C = 0 + 0.6 ( Y )
Aggregate Demand ( AD ) =
AD = C + I and AS = C + S
Therefore, the equilibrium level of income is ₹ 200 crores.
Marginal propensity to consume
Initial income
Autonomous investment
| Income(₹) | Consumption | Saving (₹) | Investment |
|---|---|---|---|
| 100 | 60 | 40 | 80 |
| 200 | 120 | 80 | 80 |
| 300 | 180 | 120 | 80 |
| 400 | 240 | 160 | 80 |
| 500 | 300 | 200 | 80 |
Therefore, the equilibrium level of income is ₹ 200 crores.
© examsnet.com
Go to Question: