Question

Calculate marginal propensity to consume from the following date about an economy which is in equilibrium.
National Income = Rs. 1,500
Autonomous Consumption Expenditure = Rs. 300
Investment Expenditure = Rs. 300

Answer 1

Consumption Function, C = 300+ b Y where Y in the income in the economy and b= marginal propensity to consume.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1,500 = 300 + b (1,500) + 300

=> 1,500 = 600+ 1,500 b

=> 1,500 b = 1,500 - 600

=> b = 900/ 1,500 = 0.6.