Question

In an economy, the equilibrium level of income is 20,000 crore. The ration of MPC and MPS is 4:1,
Calculate additional investment neededto reach a new equilibrium level of income Rs. 30,000
crore,​

Answer 1

Answer:

equilibrium level of income is where Y=C+I

Explanation:

Y=C +I

Y=20000

MPC/MPS=4/1

4Mpc=MPS

we know that MPC+MPS=1

MPC+4MPC=1

5MPC=1

MPC=1/5 or b

C=c(autonomous conumption)+bY

Y=C+I

why autonoums consumption not mention in question

Answer 2

Answer:

Explanation:

MPC = 4/5 = 0.8

MPS = 1/5 = 0.2

ΔY = 30,000 - 20,000 = 10,000

k = 1/MPS = 1/0.2 = 1 x 10/0.2 x 10 = 10/2 = 5

k = ΔY/ΔI

5 =  10,000/ΔI

ΔI = 10,000/5 = 2000cr