If in an economy's saving function is given by S = (-) 50 + 0.2Y and Y = Rs. 2,000 crore;
If in an economy's saving function is given by S = (-) 50 + 0.2Y and Y = Rs. 2,000 crore; consumption expenditure for the economy would be Rs.1,650 crore and the autonomous investment is Rs.50crore and the marginal propensity to consume is 0.8. True or False? Justify your answer with proper calculations.
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Yes, all given values are correct.
S = - 50 + 0.2Y
S = - 50 + 0.2(2,000)
= 50 + 400
= Rs. 350 crore
At equilibrium level of income:
Y = C + S
2,000 = C + 350
C = 2,000 - 350
= 1,650(in Rs. crore)
MPC + MPS = 1
MPC + 0.2 = 1
MPC = 1 - 0.2 = 0.8
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