Question

Calculate investment expenditure from the following data about an economy which is in equilibrium:
National income = 1500
Autonomous consumption expenditure = 300
Investment expenditure = 300

Answer 1

As we know that

Y = C + I

where

I (Investment expenditure) = 300

Y (National income) = 1500

${\displaystyle C=\overline{C}+cY}$

where

${\displaystyle \overline{C}}$ (autonomous expenditure)= 300

c = marginal propensity to consume

Thus, applying all the values in equation

 

${\displaystyle C=\overline{C}+cY+I}$

${\displaystyle 1500=300+c\times 1500+300}$

${\displaystyle c=\frac{1500-600}{1500}=0.6}$

Thus, marginal propensity to consumeis 0.6