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

Income reaches equilibrium when aggregate income equals aggregate expenditure, which is the sum of consumption and investment. The formula for equilibrium income is: \[ \text{Equilibrium income} = \frac{C_0 + I}{1 - MPC} \] For Economy B, with MPC = 0.6, \(C_0 = 400\) crore, and \(I = 2000\) crore, the equilibrium income is calculated as: \[ \text{Equilibrium income} = \frac{400 + 2000}{1 - 0.6} = \frac{2400}{0.4} = 6,000 \text{ crore} \] Therefore, the equilibrium income for Economy B is ₹6,000 crore.