Question

An economy is in equilibrium. From the following data, calculate investment expenditure:
Marginal Propensity to Consume = 0.9
Autonomous Consumption = 200
Level of Income = 10,000
(Investment Expenditure = 800)

Answer 1

If Autonomous consumption 200 and MPC= 0.9, then

Consumption Function, C = 200+ 0.9 Y where Y in the income in the economy.

So at national income 10,000, consumption is

C = 200+ 0.9 ( 10,000)

= 200 + 9,000

= 9,200

At equilibrium,

National income= consumption + investment

=> Investment= Y- C

=> Investment= 10,000-9,200= 800.