Question

Calculate autonomous consumption expenditure from the following date about an economy which is In equilibrium.
National income = Rs. 1,200
Marginal propensity to save = 0.20
Investment expenditure = Rs. 100
(Autonomous Consumption Expenditure = 140)

Answer 1

If MPS=0.20, then

MPC= 1-MPS= 1-0.20= 0.80

Consumption Function is C = c + 0.80 Y where Y in the income in the economy and c= Autonomous consumption.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1,200 = c + 0.80 (1,200) + 100

=> 1,200 = c+ 960 + 100

=> 1,200 = c+ 1,060

=> c = 1,200- 1,060 = Rs.140