Question

On the basis of the following information, identify whether the economy is in equilibrium or not:

S. No.	Particulars	Amount (₹)
(i)	Autonomous Consumption and Investment Expenditure (A)	500 crores
(ii)	Marginal Propensity to Save (MPS)	0.2
(iii)	National Income	4,000 crores

Answer 1

A = ₹ 500 crores

MPS = 0.2

National Income (Y) = ₹ 4,000 crores

MPC = 1 − MPS

= 1 − 0.2

= 0.8

For an economy to be in equilibrium:

Y = A + MPC (Y)

= 500 + 0.8 × 4000

= 500 + 3,200

= ₹ 3,700 crores

∴ The economy is not in equilibrium.