National Income Equilibrium Calculation

What is the national income equilibrium based on the given data?

A. RM655.56

B. RM855.56

C. RM755.56

D. RM555.56

The national income equilibrium is approximately RM384.62 million. None of the option is correct.

Answer:

The national income equilibrium based on the given data is approximately RM384.62 million.

To calculate the national income equilibrium, we can use the aggregate expenditure (AE) model, where AE is equal to the total spending in the economy. In equilibrium, AE equals the total output or national income (Y).

The components of AE are consumption (C), investment (I), government expenditure (G), and net exports (NX), which is assumed to be zero in this case. Therefore, AE is given by the equation:

AE = C + I + G

Given that autonomous consumption (Ca) is RM200 million, and the marginal propensity to save (MPS) is 0.8, we can calculate the consumption function as follows:

C = Ca + (1 - MPS) * Y

Substituting the given values:

C = 200 + (1 - 0.8) * Y

C = 200 + 0.2Y

Next, we need to determine the tax function. The tax (T) is given as 0.5 times the national income (Y):

T = 0.5Y

Now, we can rewrite the AE equation by substituting the consumption and tax functions:

AE = (200 + 0.2Y) + I + G - T

AE = 200 + 0.2Y + 200 + 100 - 0.5Y

AE = 500 + 0.2Y - 0.5Y

AE = 500 - 0.3Y

To find the national income equilibrium, we set AE equal to Y:

Y = 500 - 0.3Y

Simplifying the equation:

1.3Y = 500

Y = 500 / 1.3

Y ≈ 384.62

None of the option is correct