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Question
An economy is in equilibrium. Calculate the Investment Expenditure from the following
National Income = 800
Marginal propensity to save = 0.3
Autonomous Consumption = 100
Solution
Given that
National Income(Y) = 800
Marginal Propensity Save = 0.3
Therefore,
MPC = 1 - MPS
= 1 - 0.3 = 0.7
`barC = 100`
We know that
Y = C + I
`Y = barC + MPC(Y) + I`
800 = 100 + 0.7 x 800 + I
I = 140
Thus, the investment expenditure is Rs 140.
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