Question

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 1

Given that
Marginal propensity to consume (MPC) = 0.6
Initial income= 100
Autonomous investment= 80

`C = bar(C) + c(Y)`100

`C = 0 + 0.6(Y)`

Income	Consumption	Saving	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+ I and AS = C+ S

Therefore, the equilibrium level of income is Rs 200 crores