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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
Given that
Marginal propensity to consume (MPC) = 0.6
Initial income= 100
Autonomous investment= 80
`C = bar(C) + c(Y)`100
`C = 0 + 0.6(Y)`
| Income | Consumption | Saving | Investment |
| 100 | 60 | 40 | 80 |
| 200 | 120 | 80 | 80 |
| 300 | 180 | 120 | 80 |
| 400 | 240 | 160 | 80 |
| 500 | 300 | 200 | 80 |
Aggregate demand (AD) = Aggregate supply (AS)
AD= C+ I and AS = C+ S
Therefore, the equilibrium level of income is Rs 200 crores
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