Assume that you are given the following information about the South African econ

Question

Assume that you are given the following information about the South African economy at equilibrium with the assumption that there is no foreign sector. Use the information to answer questions 3.11 and 3.12 Autonomous consumption Investment spending Government spending Marginal propensity to consume 50 billion rands 200 billion rands 250 billion rands 0.6 3.11. Consumption spending is equal to. billion rands. 1] 1,250 12] 750 13] 550 4] 1,500 3.12. The equilibrium level of income is equal to. billion rands. [1 750 2] 1,250 3 1,500 4] 550

Explanation / Answer

Given that, Output (Y) = Y

Autonomous Consumption (C*) = 50 billion rands

Investment Spending (I) = 200 billion rands

MPC = 0.6

Government Spending (G) = 250 billion rands

Now, Output in an economy is given as

Y = Consumption + Investments + Government Spendings

Also, Consumption is given as Consumption (C) = Autonomous Consumption (C*) + MPC * Output

or C = C* + 0.6 * Y

Now, Y = C + I + G

or Y = C* + 0.6Y + 250+ 200

or Y = 50 + 0.6Y + 450

0.4Y = 500

Y = 1250

Thus, Equilibrium level of Output = 1250 billion rands

Also, Consumption = C* + 0.6*1250

or Consumption (C) = 50 + 0.6 *1250 = 50 + 750 = 800 billion rands

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