Question

Suppose, an economy is in equilibrium. From the following data, calculate investment expenditure in the economy: 

1. National Income (Y) = ₹ 10,000 crore
2. Marginal Propensity to Consume (MPC) = 0.8
3. Autonomous Consumption (`barc`) = ₹ 100 crore

Answer 1

Given, Y = ₹ 10,000 crores

MPC (b) = 0.8

`barC` = ₹ 100 crore

I = ?

At equilibrium, 

Y = C + I

Y = `barC` + b(Y) + I

₹ 10,000 = ₹ 100 + 0.8 × ₹ 10,000 + I

₹ 10,000 = ₹ 100 + ₹ 8,000 + I

₹ 10,000 = ₹ 8,100 + I

I = ₹ 1,900 crore