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The saving function of an economy is - 40 0.8 y and the investment expenditure is rupees 5000 calculate equilibrium level of national income, consumption expenditure and saving at equilibrium level, mpc mps?
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The saving function of an economy is - 40 0.8 y and the investment e...
Equilibrium Level of National Income

Equilibrium level of national income is the point where total output in the economy is equal to total expenditure. Therefore, we can equate saving function with investment expenditure to find the equilibrium level of national income.

-40 + 0.8y = 5000

0.8y = 5040

y = 6300

Therefore, the equilibrium level of national income is rupees 6300.


Consumption Expenditure

Consumption expenditure is the portion of national income that is spent on goods and services by households. We can calculate consumption expenditure by subtracting saving from national income.

C = y - S

C = 6300 - (-40 + 0.8y)

C = 6300 - (-40 + 0.8(6300))

C = 6300 - 4976

C = 1324

Therefore, consumption expenditure at equilibrium level is rupees 1324.


Saving at Equilibrium Level

Saving at equilibrium level can be calculated by substituting equilibrium level of national income in saving function.

S = -40 + 0.8(6300)

S = 4780

Therefore, saving at equilibrium level is rupees 4780.


MPC and MPS

MPC (Marginal Propensity to Consume) is the ratio of change in consumption expenditure to change in national income. MPS (Marginal Propensity to Save) is the ratio of change in saving to change in national income.

MPC = ΔC / Δy

MPS = ΔS / Δy

Since consumption expenditure and saving are linear functions, their slopes represent MPC and MPS respectively.

MPC = 0.8

MPS = 0.2

Therefore, MPC is 0.8 and MPS is 0.2.
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The saving function of an economy is - 40 0.8 y and the investment expenditure is rupees 5000 calculate equilibrium level of national income, consumption expenditure and saving at equilibrium level, mpc mps?
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