Question

If an economy , Saving Function is given by S `=(-)50+0.2Y and Y = Rs. 2,000`crores, consumption expenditure for the economy would be Rs. 1,650 crores and the autonomous investment is Rs. 50 crores and the marginal propensity to consume is 0.8 True or False ? Justify your answer with proper calculattions.

Answer 1

Yes , all the values are correct.
S `=50+0.2Y
S `=50+.02(2,000)`
`=-50+400`
=Rs. 350` crores
At equilibrium level of income:
Y `=C+S`
`2,000=C+350`
C `=2,000-350= 1,650` (in Rs. Crores)
MPC+MPS =1
MPC+0.2 =1`
MPC `=1-0.2=0.8`