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Question
Calculate 'Marginal Propensity to Consume' from the following data about an economy which is in equilibrium:
National income = 800
Autonomous consumption expenditure = 100
Investment expenditure = 100
Solution
Given that
National Income (Y) = 800
Autonomous consumption expenditure(C) = 100
Investment expenditure (I) = 100
As we know that
Y = C + I
`C = barC + cY`
`Y = barC + cY + I`
800 = 100 + C(800) + 100
600 = 800C
C = 0.75
Therefore, Marginal Propensity to Consume (MPC) is 0.75
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