Question

Calculate Autonomous Consumption expenditure from the following data about an economy which is in equilibrium:

National Income = Rs 1,200

Marginal Propensity to Save = 0.20

Investment expenditure = Rs 100

विकल्प

• Rs. 140

• Rs. 180

• Rs. 100

• Rs. 120

Answer 1

Rs. 140

Explanation:

Given,

1. National Income (Y) = Rs 1,200
2. Investment Expenditure (I) = Rs 100,
3. Marginal Propensity to Save (MPS) = 0.20

Calculation of Marginal Propensity to Consume (MPC or b)

= 1 − Marginal Propensity to Save(MPS)

= 1 − 0.20

= 0.80

∴ MPC = 0.80

Also, Y = C + I, or Y = C⁻ + bY +  l = C⁻ + bY + I  ..........(i)

∵ C = C⁻ + bY ∵ C =C⁻ + bY

On substituting the given variables in equation

(i), we get

l,200 = C⁻ + 080 × 1,200 + 1001, 200

= C⁻ + 080 × 1,200 + 100

l,200 = C⁻ + 960 + 1001, 200 =  C⁻ + 960 + 100

=  C⁻+ 1,060 =  C⁻+ 1,060

∴ C⁻ ∴ C⁻ = 1,200 − 1,060 = Rs 140

∴ Autonomous consumption expenditure (C⁻) = Rs 140