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Question
An economy is in equilibrium. Calculate Autonomous Consumption from the following :
National Income = 1,250
Marginal Propensity to Save = 0.2
Investment Expenditure = 150
Solution
Given that
Marginal propensity to save S = 0.2
Marginal propensity to consume c 1 - MPS = 1 - 0.2 = 0.8
Investment expenditure(I) = 150
NationalIncome(Y) = 1250
As we know that
Y= C + I
`Y = bar(C) + MPC(Y) + I`
`1250 = bar(C) + 0.8 xx 1250 + 150`
`1250 = bar(C) + 1000 + 150`
Autonomous Consumption = `(barC)` = 100
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| 200 | ........ | ...... | 0 |
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|
Consumption expenditure (Rs) |
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|
100 |
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150 |
|
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175 |
75 |
……. |
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