Question

An economy is in equilibrium. Calculate Autonomous Consumption from the following:
National Income = 1250
Marginal Propensity to Save = 0.2
Investment Expenditure = 150

Answer 1

If MPS=0.2, then

MPC= 1-MPS= 1-0.2 = 0.8

Consumption Function is C = c + 0.8 Y where Y in the income in the economy and c= Autonomous consumption.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1,250 = c + 0.8 (1,250) + 150

=> 1,250 = c+ 1,000 + 150

=> 1,250 = c+ 1,150

=> c = 1,250- 1,150 = 100.