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Question
An economy is in equilibrium. From the following data calculate autonomous consumption.[4]
(i) Income = 10,000
(ii) Marginal propensity to consume = 0.2
(iii) Autonomous consumption = 1,500
Solution
Given that
Income (Y) = 10,000
Marginal propensity to save (s) = 0.2
Therefore, marginal propensity to consume = 1 -0.2 =0.8
I= 1500
As we know that
Y =C+I
C =Y -1
C = 10,000 – 1500 = 8500
`C = barC + cY`
`8500 = barC + 0.8(10000)`
`barC = 500`
Thus, autonomous consumption is 500.
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