Equilibrium level of income - question (1 Viewer)

[Untroubled]

Hey guys, I ran into this equilibrium-calculation question and couldn't solve it. Answer is C according to my textbook but don't know the working out. Anyone can help?

Question from 2011 HSC paper:
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The table shows national accounts data for Consumption (C) and National Income (Y) in $billion for an economy.
Year ------ C ($bn) ------- Y ($bn)
1 ---------- 110 ---------- 150
2 ---------- 200 ---------- 300

What is the new equilibrium level of income in year 3 if investment increases by $40bn?
A - $360bn
B- $367bn
C- $400bn
D - $420bn
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Also, I'd love to know the equations you need to know (besides the multiplier) for questions like these ( something to do with MPC, MPS? consumption and saving functions? ) in economics tests.

 

[Zlatman]

MPC = (change in consumption)/(change in income)
= 90/150
= 0.6

k = 1/(1-MPC)
= 1/0.4
= 2.5

Change in equilibrium income = k x change in investment
= 2.5 x 40bn
= $100bn

Therefore, the new equilibrium income is $400bn (C).

 

[Untroubled]

Simple and easy to understand,
thank you!