question_answer

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,        \[Y=1,500\]