Question

Calculate investment expenditure from the following date about an economy which is in equilibrium:
National income = Rs. 1,000
Marginal propensity to save = Rs. 0.25
Autonomous consumption expenditure = Rs. 200
(Investment Expenditure = 50)

Answer 1

If MPS= 0.25, then

MPC= 1- MPS= 1- 0.25= 0.75.

Consumption Function is C = 200+ 0.75 Y where Y in the income in the economy.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1000 = 200 + 0.75 (1,000) + I

=> 1000 = 200+ 750 + I

=> 1000 = 950 + I

=> I = Rs. 50