The table shows the consumption schedule of an economy (Rs crore). Autonomous investment is Rs 40 crore.
| Income | Consumption |
|---|---|
| 0 | 40 |
| 100 | 120 |
| 200 | 200 |
| 300 | 280 |
| 400 | 360 |
What are the equilibrium income and the marginal propensity to save?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 400 crore; 0.2
Equilibrium is the income at which output equals aggregate demand, C + I. The MPC is the change in consumption per Rs 100 of extra income, and MPS = 1 − MPC.
At Y = 400: AD = 360 + 40 = 400, which equals income.
At Y = 200: AD = 200 + 40 = 240, more than output, so 200 is not the equilibrium.
\( \displaystyle MPC = \frac{80}{100} = 0.8 \)
\( \displaystyle MPS = 1 - 0.8 = 0.2 \)
Equilibrium income is Rs 400 crore and the MPS is 0.2. At Rs 200 crore saving is zero, but saving is not yet equal to investment.
NCERT (2026-27): “Equilibrium Equilibrium is shown graphically by putting ex ante aggregate demand and supply together in a diagram (Fig. 4.6). The point where ex ante aggregate demand is equal to ex ante aggregate supply will be equilibrium.” “Some Definitions Marginal propensity to consume (MPC): it is the change in consumption per unit change in income. It is denoted by c and is equal to ΔC/ΔY. |