Question

Calculate consumption expenditure in the economy whose equilibrium level of income is 20,000, autonomous consumption is 500 and marginal propensity to save is 0.5.
(Consumption Expenditure a 10.500)

Answer 1

If MPS=0.5, then

MPC= 1-MPS= 1-0.5 = 0.5.

Consumption Function is C = 500+ 0.5 Y where Y in the income in the economy.

At equilibrium level of income of 20,000, consumption is

C=500 + 0.5 ( 20,000)

= 500 + 10,000

= 10,500