Question

The value of marginal propensity to consume is 0·6 and initial income in the economy is Rs. 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of Rs. 80 crores. 

Answer 1

The answer based on any assumption about autonomous consumption should be awarded marks.

Income Rs. (crores)	Consumption MPC = 0·60	Savings 1 – MPC = MPS MPS = 0·40	Investment Rs. (crores)
100	60	40	80
200	120	80	80
300	180	120	80
400	240	160	80

In the above table the equilibrium level of income at autonomous investment of ` 80 crores is at Rs. 200 crores.