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Question
An economy is in equilibrium. Find the Investment Expenditure from the following :
National Income = 750
Autonomous Consumption = 200
Marginal Propensity to Save = 0.4
Solution
Given
Marginal Propensity to Save (MPS) = 0.4
So,
Marginal Propensity to Consume = (1 - MPS)
Marginal Propensity to Consume = 1 - 0.4 = 0.6
We know,
\[Y = C + I\]
\[Y = \bar{C} + cY + I\]
Substituting the given values
\[750 = 200 + 0 . 6 \times 750 + I\]
or, I = 100
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