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Question
An economy is in equilibrium. Calculate Marginal Propensity to Save from the following :
National Income = 1,000
Autonomous Consumption = 100
Investment Expenditure = 200
Solution
Given
Y = 1,000
I = 200
C = 100
We know that at equilibrium,
Y = C + I
Y = C + cY + I
1, 000 = 100 + c \times 1, 000 + 200
1, 000c = 1, 000 - 100 - 200
1, 000c = 700
c or MPC = \frac{700}{1, 000} = 0 . 7
Thus,
MPS = 1 - MPC = 1 - 0 . 7 = 0 . 3
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