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