Question

An economy is in equilibrium. Find autonomous consumption expenditure:
National Income = 1,600
Investment Expenditure = 300
Marginal Propensity to Consume =0.8
(Autonomous Consumption Expenditure = 20)

Answer 1

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

=> 1,600 = c + 0.8 (1,600) + 300

=> 1,600 = c+ 1,280 + 300

=> 1,600 = c+ 1,580

=> c = 1,600- 1,580 = 20