Question

1. Calculate Marginal Propensity to Consume from the following:
(1) Equilibrium income
(ii) Consumption expenditure at zero income
(iii) Investment
20
* 50
{Marqinal Propensity to consume = 0.8)​

Answer 1

Answer:

Consumption Function, C = 20+ b Y where Y in the income in the economy and b= marginal propensity to consume.

At equilibrium level of output,

AS=AD

Y= C+I

=> 350 = 20 + b (350) + 50

=> 350 = 70+ 350 b

=> 350 b = 350 - 70

=> b = 280/ 350 = 0.8.

Explanation:

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