Question

An economy is in equilibrium. Calculate national income from the following:
Autonomous consumption = 100
Marginal propensity to save = 0.2
Investment expenditure = 200
(National Income = 1,500)

Answer 1

If MPS= 0.2, then

MPC=1- MPS= 1-0.2= 0.8.

Consumption Function is C = 100+ 0.8 Y where Y in the income in the economy.

At equilibrium level of income,

AS=AD

Y= C+I

=> Y= 100 + 0.8 Y + 200

=> Y - 0.8 Y = 100 + 200

=> 0.2 Y = 300

=> Y = 300/ 0.2 = Rs.1,500.