The information below relates to a closed economy without a government: Autonomous consumption = R285 million

Business Dec 10, 2020

The information below relates to a closed economy without a government:

Autonomous consumption = R285 million.

Autonomous investment = R300 million.

Marginal propensity to consume = 0.4.

Calculate the equilibrium level of income.

Expert Solution

The equilibrium level of income is R976.95 million.

Explanation:

Equilibrium level of income = 1 / (1 - Marginal propensity to consume) * (Autonomous consumption + Autonomous investment)
Equilibrium level of income = 1 / (1 - 0.4) * (R285 million + R300 million)
Equilibrium level of income = R976.95 million

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