Question

How much is autonomous consumption if mpc is 0.6 and initial income 100 and autonomous investment 80?

Answer 1

90.................................................................................

Answer 2

The formula is as given below:

C = a + b(Y)

a = Autonomous consumption

b = Marginal prospensity to consume.

Y = income.

Given that the autonomous income is not mentioned it takes the absolute value of 0.

We now have :

C = 0 + bY

We do the substitution as follows :

C = 0 + 0.6 × 100

C = 60

When the income is 100  the consumption will be 60 and the savings will be 40.

This is because savings = Income - Consumption