If MPS = 0.30, Autonomous Consumption = Rs 50 crores and Investment = Rs. 100 crores, then Equilibrium Income will be:

Rs. 500 crore

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Rs. 150 crores

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Rs. 300 crores

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Rs. 45 crores

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Solution

The correct option is B Rs. 500 crore
If MPS = 0.30 , then MPC= 1- MPS = 1- 0.30 = 0.70
So consumption Function is C = 50+ 0.70 Y where Y in the income in the economy.

At equilibrium level of income,

AS=AD

Y= C+I

=> Y= 50 + 0.70 Y + 100

=> Y - 0.70 Y = 50 + 100

=> 0.30 Y = 150

=> Y = 150/ 0.30 = Rs. 500 crores

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