(i) Investment expenditure at equilibrium level of income |
(ii) Autonomous consumption |
Answer:
(i) At equilibrium, savings (S) are equal to planned investment (I). It is given that, \[S=-200+\,\,\,\,\,Y\] Equilibrium level of income is 2,000. Substituting the value of Y in the savings function, we get \[S=-200+0.25\times 2,000\] \[S=-200+500\Rightarrow S=\]300 or /= 300\[[\therefore \]at equilibrium level of Income Savings (S) = Investment Expenditure (/)] Thus, investment expenditure at equilibrium level of income is 300. (ii) Autonomous consumption means the level of consumption expenditure when income is zero. When Y=0, Savings =-200 Consumption+Savings=Income \[Consumption+(-\text{ }200)=0\] So, autonomous consumption =200 Or According to question, Marginal Propensity to consume (MPC)=\[\frac{1}{3}\] Marginal Propensity of Save(MPS) We know that, MPC + MPS =1 \[\therefore \]\[\frac{1}{3}\]MPS+MPS=1 MPS=\[\frac{3}{4}\] MPS =0.75 and MPC =1-0.75 =0.25 Consumption function\[(C)=\overline{C}+bY,\] where, \[\overline{C}\]= Autonomous Consumption =Rs.100crore b= MPC =025 So, consumption function (c)=100+025Y Saving function \[(S)=-\overline{S}+sY,\] where, \[-\overline{S}\]= Dissavings = Autonomous consumption = 100 and S = Marginal Propensity to Save = 075 Therefore, Savings Function (S) =\[-100+0.75Y\]
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