devarshi-dt-logo

Question:

The value of marginal propensity to consume is 0.6 and initial income in the economy is Rs.100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of Rs.80 crores.

Solution:

Income = Rs.100 crore
MPC = 0.6
Consumption = Income × MPC = 100 cr × 0.6 = 60 crore
Savings = Income - Saving = 100 crore - 60 crore = 40 crore
Equilibrium level of income (Y) = C + I = 60 cr + 80 cr = 140 cr