Question

Equilibrium level of income for Economy B.

Hint:

The equilibrium income is the income level at which total income equals total expenditure. It’s calculated similarly to break-even income but focuses on the economy’s balance between consumption and investment.

Answer 1

The equilibrium level of income occurs when total income is equal to total expenditure, i.e., the sum of consumption and investment expenditure. The formula for the equilibrium level of income is: \[ \text{Equilibrium income} = \frac{C_0 + I}{1 - MPC} \] Substituting the given values for Economy B (MPC = 0.6, \(C_0 = 400\) crore, \(I = 2000\) crore): \[ \text{Equilibrium income} = \frac{400 + 2000}{1 - 0.6} = \frac{2400}{0.4} = 6,000 \text{ crore} \] Thus, the equilibrium income for Economy B is ₹6,000 crore.