Question

An economy is in equilibrium. Its national is Rs. 5,000 and autonomous consumption expenditure is 500. What is the total consumption expenditure if marginal propensity to consumer is 0.7?

Answer 1

If Autonomous consumption is Rs. 500 and MPC= 0.7, then

Consumption Function, C = 500+ 0.7 Y where Y in the income in the economy.

So at national income Rs. 5,000, consumption is

C = 500+ 0.7 ( 5,000)

= 500 + 3,500

= Rs. 4,000.