Question

The function of saving is given to be:-40+.25Y.if planned investment are rs 100 crores,determine (a) eqilibrium level of income (b) level of consumption at eqilibrium;(c) saving at eqilibrium.

Answer 1

Given :-

Consumption (C) = 40

Marginal Propensity of Consumption (MPC) = 0.25

Investment (I) = 100

Solution :-

Formula - $\boxed{Y = C + MPC (Y) + I}$

Y = 40 + 0.25 (Y) + 100

Y = 0.25 (Y) + 140

Y = 140 / 0.25 = 560

☆ Equilibrium level of income = 560

C = C + MPC (Y)

C = 40 + 0.25 (560)

C = 40 + 140 = 180

☆ Level of consumption at equilibrium = 180

S = Y - C

S = 560 - 180 = 380

☆ Saving at equilibrium = 380