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Question
An economy is in equilibrium. Calculate Marginal Propensity to Consume :
National income = 1000
Autonomous consumption expenditure = 200
Investment expenditure = 100
Solution
Given that
National income (Y) = 1000
Autonomous consumption expenditure `(barC)=200`
Investment expenditure (I) = 100
As we know that
National Income = Consumption + Investment expenditure
`Y=barC+cY+I`
where c is marginal propensity to consume
1000 = 200 + c(1000) + 100
700 = c(1000)
c = 0.7
Hence, marginal propensity to consume is 0.7
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