Question

From the following data calculate investment expenditure:

Marginal Propensity to Save = 0.2

Equilibrium level of income = Rs 22,500

Autonomous consumption = Rs 500

Options

• Rs. 4000

• Rs. 6000

• Rs. 8000

• Rs. 4400

Answer 1

Rs. 4000

Explanation:

Given, Marginal Propensity to Save (MPS) = 0.2, Income (Y) = 22,500, C⁻= 500,

We know that, MPC = 1 MPS= 1 - 0.2 = 0.8.

At the equilibrium level,

Y = C + I

Therefore 22,SOO = 500 + (0.8) 22,500 + I

Or I = 22,500 − 500 - 18,000 = Rs. 4,000

Hence we have Investment Expenditure equal to Rs. 4000