Question

Answer the following questions based on the data given below:

Planned Investments = ₹ 100 crores. C = 50 + 0.50 Y

1. Determine the equilibrium level of income. (2)
2. Calculate the value of Savings at the equilibrium level of National Income. (2)
3. Calculate the value of the Investment Multiplier. (2)

Answer 1

Given:

C = 50 + 0.5 Y

I = ₹ 100 crores

(a) The equilibrium level of Income is determined by:

Y = C + I

Y = 50 + 0.5 Y + 100

Y − 0.5 Y = 150

or 0.5 Y = 150

Y = `150/0.5`

Y = ₹ 300 crores

(b) C = 50 + 0.5 Y

= 50 + 0.5 × 300

= 50 + 150

₹ 200 crores

S = Y − C

= 300 − 200

= ₹ 100 crores

(c) K = `1/(1 - MPC)`

= `1/(1 - 0.5)`

= `1/0.5`

= 2