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Question

An economy is in equilibrium. Calculate Marginal Propensity to Consume : 
National income = $$1000$$ 
Autonomous consumption expenditure = $$200$$ 
Investment expenditure = $$100$$ 


Solution

We know that at equilibrium,
National Income = Consumption + Investment expenditure

$$ \Rightarrow Y = \bar{C} + cY + I$$

$$\Rightarrow 1,000 = 200 + c(1,000) + 100$$

$$\Rightarrow 700 = C (1,000)$$

$$\Rightarrow c = 0.7$$

Hence, Marginal Propensity to Consume is $$0.7$$

Economics

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