Question

given
a)Equilibrium level of Income = 5000cr.
2) MPS
0.4
3) Autonomus consmption
=500
find the value of autonomous expenditure​

Answer 1

Answer:

(i) Consumption Function, C = 500+ 0.4 Y where Y in the income in the economy.

At equilibrium,

AS=AD

Y= C+I

=> 5,000 = 500 + 0.4 (5,000) + I

=> 5,000 = 500 + 2,000+ I

=> 5,000 = 2,500 + I

=> I = 5,000- 2,500 = 2,500.

(ii) Consumption Function, C = 500 + 0.4 Y where Y in the income in the economy.

So at national income 5,000 , consumption expenditure is

C = 500+ 0.4 ( 5,000)

= 500 + 2,000

= 2,500