Question

Answer the following questions based on the data given below :
(i) Planned investment = = 100 crore
(ii) C = 50 + 0.5 Y
Y=6
(a) Determine the equilibrium level of income.
(b) Calculate the saving and consumption expenditure at equilibrium
level of National Income.
42
prium level of income

What will be its income at equilibrium level​

Answer 1

Explanation:

As given in the examination problem, Equilibrium Income (Y) = Rs 4000 crore Autonomous Investment + Autonomous Consumption (\bar { A\quad } ) = Rs 50 crore MPS = 0.2

So, MPC(b) = 1 – 0.2 = 0.8

(MPC = 1 – MPS)

AD = C + I

AD = \bar { C } + bY + I = \bar { A\quad } + bY

= 50 + 0.8Y (\bar { A\quad } =\bar { C } +\bar { I } )

As we know, the equilibrium level of national income in two-sector model is determined where,

AS = AD

Y = 50 + 0.8Y

4000 = 50 + 0.8(4000)

4000 = 50 + 3200

4000 =3250

Hence, the economy is not in equilibrium.