If MPC is 0.7 while government expenditure increased by N 150m, the equilibrium national income is

MPC refers to the Marginal Propensity to Consume. It is the fraction of additional income that an individual or a household spends on consumption. When the government spends more money, it leads to an increase in the total expenditure in the economy, and the amount of money in circulation increases. This increase in expenditure leads to an increase in the national income by a multiple of the initial expenditure. The multiple is determined by the MPC. The formula for the equilibrium national income is given by: Equilibrium national income = Initial increase in expenditure / (1 - MPC) Substituting the values given: Equilibrium national income = 150m / (1 - 0.7) = 150m / 0.3 = N 500 million Therefore, the equilibrium national income is N 500 million.