Question

Calculate autonomous consumption expenditure from
the following data when the economy is in equilibrum :
National income (Y) = 1,200 crore
Marginal propensity to consume (MPC) = 0·8
Investment expenditure (I) = 100 crore​

Answer 1

Explanation:

MPS=0.20, then

MPC= 1-MPS= 1-0.20= 0.80

Consumption Function is C = c + 0.80 Y where Y in the income in the economy and c= Autonomous consumption.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1,200 = c + 0.80 (1,200) + 100

=> 1,200 = c+ 960 + 100

=> 1,200 = c+ 1,060

=> c = 1,200- 1,060 140 rupees