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Question
Calculate Marginal Propensity to Consume from the following data about an economy
Which is an equilibrium:
National income = 2000
Autonomous Consumption expenditure = 200
Investment expenditure = 100
Solution
Given that
National income (Y) = 2000
Autonomous consumption expenditure = 200
Investment expenditure = 100
As we know that
Y = C + I
Since `C = barC + cY` we have
`Y = barC + cY + I`
By substituting the given values,we get
`2000 = 200 + c(2000) + 100`
`1700 = 2000c`
c = 0.85
Therfore, the marginal propensity to consume is 0.8
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