Question

Given that MPC = 0.8 and investment at all the levels of income is 40 crores., complete the following table:

$\begin{array}{ccccccc}\text{INCOME}& \text{CONSUMPTION}& \text{SAVINGS}& \text{INVESTMENT}& \text{AD}& \text{AS}& \\ 0& 60& & & & & \\ 100& & & & & & \\ 200& & & & & & \\ 300& & & & & & \\ 400& & & & & & \\ 500& & & & & & \\ 600& & & & & & \end{array}$

Also calculate:

(a) Break-even point

(b) Equilibrium level of income

(c) MPS

(d) APC at the income level of 200 crores

(e) APS at the income level of 100 crores

Answer 1

$\begin{array}{ccccccccccc}\text{Income}& \text{Consumption}& \text{Savings}& \text{Investment}& \text{AD = C + I}& \text{AS =C+s}\left(Y\right)& =60+0.8Y& =Y-C& & & \\ 0& 60& -60& 40& 40& 0& & & & & \\ 100& 140& -40& 40& 180& 100& & & & & \\ 200& 220& -20& 40& 260& 200& & & & & \\ 300& 300& 0& 40& 3400& 300& & & & & \\ 400& 380& 20& 40& 420& 400& & & & & \\ 500& 460& 40& 40& 500& 500& & & & & \\ 600& 540& 60& 40& 580& 600& & & & & \end{array}$

(a) Break-even point, where C = Y i.e., at 300 income level

(b) Equilibrium level of income, where AD = AS i.e., at 500 crores

(c) MPS = 1- MPC

(d) APC at the income level of 200 crores = C/Y = $\frac{220}{200}$ = 1.1

(e) APS at the income level of 100 crores = S/Y = - $\frac{40}{100}$ = - 0.4