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Question
Calculate autonomous consumption expenditure from the following data about an
economy which is in equilibrium.
National income = 1200
Marginal propensity to save = 0.20
Investment expenditure = 100
Solution
We know that
Y = C + I
where
I(Investment expenditure) = 100
Y(Income) = 1200
Marginal propensity to save (s)= 0.20
C = `barC + cY`
where
`barC` = autonomous consumption expenditure
c = marginal propensity to consume
x = 1 - marginal propensity to save
= 1 - 0.20 = 0.80
Thus applying the values in the eqaution
`Y = barc + cY + I`
`1200 = barC + 0.8 xx 1200 + 100`
`barC = 1200 - 1060 = 140`
Thus autonomous consumptin expendture is 140
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