Question

The value of marginal propensity to consume is 0.6 and initial income in the economy is 100 crore. Prepare a schedule showing income , consumption and saving.Also show the equilibrium level of income by assuming autonomous investment of 80 crore

Answer 1

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Answer 2

Given:  

Marginal propensity to consume (MPC) = 0.6

Initial income = 100

Autonomous investment = 80

Thus, with above given information,

$C=\overline{C}+c(Y)$

$C=\overline{C}+0.6(Y)$

Consumption is the action of using or wasting the money in various resources.

Aggregate supply = Aggregate demand

Where,  

Aggregate supply = AS, Aggregate demand = AD.

AD = C+1 Whereas, AS = C+S

Therefore, the level of equilibrium income by assuming autonomous investment of Rs. 80 crores is Rs. 200 crores.

Schedule of Income, Consumption, Savings and Investment are given below.