The value of MPC is 0.6 and initial income in economy is 100 crore. Pr...
Income, Consumption, and Saving ScheduleGiven:
- Marginal Propensity to Consume (MPC) = 0.6
- Initial Income = 100 crore
- Autonomous Investment = 80 crore
The consumption function can be expressed as:
- Consumption (C) = Autonomous Consumption + MPC × Income (Y)
Assuming autonomous consumption is 0 for simplicity, the schedule can be prepared as follows:
- Income (Y) in Crores: 100, 120, 140, 160, 180
- Consumption (C) in Crores:
- For Y = 100: C = 0.6 × 100 = 60
- For Y = 120: C = 0.6 × 120 = 72
- For Y = 140: C = 0.6 × 140 = 84
- For Y = 160: C = 0.6 × 160 = 96
- For Y = 180: C = 0.6 × 180 = 108
- Saving (S) in Crores:
- For Y = 100: S = Y - C = 100 - 60 = 40
- For Y = 120: S = 120 - 72 = 48
- For Y = 140: S = 140 - 84 = 56
- For Y = 160: S = 160 - 96 = 64
- For Y = 180: S = 180 - 108 = 72
Equilibrium Level of IncomeIn equilibrium, total spending (Consumption + Investment) equals total output (Income).
- At equilibrium: C + I = Y
- With I = 80 crore, the equation becomes:
- C + 80 = Y
Using the consumption values calculated above, we can find the equilibrium income:
1. For Y = 160: C = 96, thus 96 + 80 = 176 (not equilibrium)
2. For Y = 140: C = 84, thus 84 + 80 = 164 (not equilibrium)
3. For Y = 180: C = 108, thus 108 + 80 = 188 (not equilibrium)
The equilibrium income occurs when savings equal investment. When savings reach 80 crore, the economy is in equilibrium.
In this scenario, equilibrium income is determined at a level where consumption plus investment equals income, leading to a balance in the economy.