Assuming for a hypothetical economy :

(i)

Autonomous Consumption Expenditure ($\displaystyle \bar{c}$) = ₹ $\displaystyle 250$ crore

(ii)

Marginal Propensity to Save (MPS) = $\displaystyle 0$·$\displaystyle 2$

(iii)

Autonomous Investments ($\displaystyle I_0$) = ₹ $\displaystyle 200$ crore

(iii)

Estimate the Break-even level of Income and Equilibrium level of Income, on the basis of information given above.

Given, Autonomous Consumption Expenditure ($\displaystyle \bar{c}$) = ₹ $\displaystyle 250$ croreMarginal Propensity to Save (MPS) = $\displaystyle 0.2$Autonomous Investments ($\displaystyle I_0$) = ₹ $\displaystyle 200$ croreMarginal Propensity to Consume (MPC) = $\displaystyle 1$ – MPS = $\displaystyle 1$ - $\displaystyle 0.20$ = $\displaystyle 0.80$As we know, at Break-even level of income; Y = CY = $\displaystyle \bar{c}$ + (MPC) YY = $\displaystyle 250$ + $\displaystyle 0.80$ YY = ₹ $\displaystyle 1,250$ croreAt equilibrium level of income; Y = C + IY = ($\displaystyle 250$ + 0.80Y) + $\displaystyle 200$Y = ₹ $\displaystyle 2,250$ croreAlternate SolutionAs we know, at Break-even level of income; S = $\displaystyle 0$S = - $\displaystyle \bar{c}$ + (MPS) Y$\displaystyle 0$ = - $\displaystyle 250$ + $\displaystyle 0.20$ YY = ₹ $\displaystyle 1,250$ croreAs we know, at equilibrium; S = I-$\displaystyle 250$ + $\displaystyle 0.20$ Y = $\displaystyle 200$Y = ₹ $\displaystyle 2,250$ crore