economy is 500 Crore if the marginal propensity to consume 0.6 determine the level of income and savings is 600 crore
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Income is 100 crore.
Investment is 80 crore
MPC = 0.6
MPS = 1 - MPC
MPS = 1- 0.6
MPS = 0.4
AD = C+ I
AD = 0.6 Y + 80
AS = AD
Y = 80 + 0.6 (100)
100 = 80 + 0.6 (100)
100 = 80 + 60
100 = 140
Hence this shows that the economy is not in equilibrium as the aggregate demand is greater than aggregate supply.
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