Question

From the following data about an economy, calculate its equilibrium level of Income:
Marginal Propensity to Consume = 0.5
Autonomous Consumption Expenditure = Rs. 300
Investment Expenditure = Rs. 6,000
(Equilibrium Level of Income = 12,600)

Answer 1

Consumption Function is C = 300+ 0.5 Y where Y in the income in the economy.

At equilibrium level of income,

AS=AD

Y= C+I

=> Y= 300 + 0.5 Y + 6,000

=> Y - 0.5 Y = 300 + 6,000

=> 0.5 Y = 6,300

=> Y = 6,300/ 0.5 = Rs.12,600