Question

An economy is in equilibrium. Find Marginal Propensity to Consume from the following:
National income = 2000
Autonomous consumption = 400
Investment expenditure = 200

Answer 1

Consumption Function is C = 400+ b Y where Y in the income in the economy and b= marginal propensity to consume.

At equilibrium level of output,

AS=AD

Y= C+I

=> 2,000 = 400 + b (2,000) + 200

=> 2,000 = 600+ 2,000 b

=> 2,000 b = 2,000 - 600

=> b = 1,400/ 2,000 = 0.7.