Consider the following information describing an economy with demand-determined output.There is no government or foreign trade.All dollar figures are in billions. 1.equilibrium condition is Y = C + I
2.marginal propensity to save = 0.20
3.the autonomous part of C is $50
4.investment is autonomous and equals $25
TABLE 21-5
Refer to Table 21-5.At the equilibrium level of national income,the level of desired saving will be
A)equal to consumption expenditures.
B)$375.
C)$50.
D)$25.
E)$0

Question

Quizplus · Accepted Answer

The equilibrium level of national income (Y) is determined by the equation Y = C + I. Given the marginal propensity to save (MPS) is 0.20, this implies that the marginal propensity to consume (MPC) is 1 - MPS = 0.80. The autonomous consumption is $50, and autonomous investment is $25. To find the equilibrium level of income, we use the formula Y = 1/(1 - MPC) * (Autonomous Consumption + Autonomous Investment). Substituting the given values, Y = 1/(1 - 0.80) * ($50 + $25) = 5 * $75 = $375. Since saving (S) is the part of income not consumed (Y - C), and given that the economy is in equilibrium where S = I, the level of desired saving is equal to the level of investment, which is $25.

Consider the Following Information Describing an Economy with Demand-Determined Output