An economy is in equilibrium. Calculate national income from the following. |
Autonomous consumption =100 |
Marginal propensity to save = 0.2 |
Investment expenditure = 200 |
Answer:
Given Autonomous consumption \[(\overline{C})\,=\,100\] MPS(s) = 0.2 i.e. \[MPC(c)=1MPS=10.2=0.8\] 1 = 200 y =?? We know that at equilibrium, \[Y=C+I\] i.e. \[Y=\left( \overline{C} \right)+cY+I\] \[\Rightarrow \] \[Y=100+0.8Y+200\] \[\Rightarrow \] \[Y=0.8Y+300\] \[\Rightarrow \] \[Y0.8\,Y=300\] \[\Rightarrow \] \[0.2Y=300\] so, \[Y=1,500\]
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