Suppose investment in the economy is fixed at Rs.40 crores. The consumption expenditure, at different levels of income , is given in the following schedule:
`{:("Income"(Rs."crores"),200,300,400,500,600,700),("Consumption"(Rs."crose"),220,300,380,460,540,620):}`
On the basis of the given schedule, answer the following questions:
(i) Calculate AD and AS all level of income.
(ii) At what level of income will the economy be at equilibrium?
(iii)State the level if income where total saving is negative.
(iv) Are saving and investment equal at the equilibrium level of income?
(v) Calculate MPC and MPS ,when the incme increases from Rs. 400 crores to Rs. 500 crores.
(vi) What will be the income level of Rs. 300 crores?

Explanation

(i)
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(ii) Equilibrium level of income is Rs. 500 Crores.At this level, AD =AS `= Rs. 500` Crores and Saving= Investment = Rs. 40 Crores.
(iii) When the Income is Rs.200 crores, saving is negative (-20crores).
(iv) Yes, saving and investment are equal (Rs.40 crores) at the equilibrium level of income.
(v) MPC `=("Change in Consumption"(DeltaC))/("Change in Income"(DeltaY))=(460-380)/(500-400)=(80)/(100)`
MPC `=0.80,`
MPS `=1-MPC`
MPS `=1-0.80=0.20`
(vi) AD = Rs. 340 crores at an income of Rs. 300 crores.