Question

Indian economy autonomous consumption is 500 marginal propensity to save is 0.2 and investment expenditure is 2000 calculate its equilibrium level of income​

Answer 1

Answer:

12500

Explanation:

Y= 500 + 0.8(Y) + 2000

Y= 2500 +0.8(Y)

Y-0.8(Y)= 2500

0.2(Y) = 2500

Y= 2500÷ 0.2

Y = 12500

Answer 2

The equilibrium level of income​ is 12,500.

Autonomous Consumption = 500 (Given)

Marginal Propensity = MPS = 0.2 (Given)

Investment Expenditure = l = 2000 (Given)

If MPS = 0.2, then  

MPC = 1-MPS

= 1-0.2

= 0.8

The consumption function will be -

C = 500+ 0.8y where y  is the economy income.

Thus,  at equilibrium level of income,

y = C+I  

y = 500 + 0.8 Y + 2,000

y - 0.8y = 500 + 2,000

= 0.2y = 2,500

y = 2,500/ 0.2

= 12,500

Therefore, the equilibrium level of income​ is 12,500.