Question

the autonomous consumption in an economy is 500 cr and total personal disposable income is 5000 cr. if the marginal propensity to consume is 0.8 find out the level of aggregate consumption
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Answer 1

Explanation:

Autonomous consumption is 500CR

MPC IS 0.8

Consumption function is under C= 500cr +0.8 Y

where Y is income in the economy

Y 5000cr

C = 500cr + 0.8× 5000cr

C = 500cr + 4000cr

C = 4500cr

Aggregate consumption is 4500cr

Answer 2

The level of aggregate consumption is 4500 cr.

C=a+bY

where C =aggregate consumption

a= autonomous consumption

b = marginal propensity to consume

Y = personal disposable income

Therefore, aggregate consumption is

C= 500+ 0.8*5000

= 500 + 4000

= 4500 cr.

1. It is a component of aggregate expenditure.
2. It is only short run function.
3. Autonomous consumption occurs at zero level of income it is a function of dissavings i.e. such consumption is carried out from savings.
4. Marginal propensity to consume is change in consumption expenditure as a result of change in disposable income.
5. Personal disposable income means income that is left to spend after deducting taxes.