Question

An economy is in equilibrium. From the following data calculate investment expenditure :

(i) Marginal propensity to consume = 0·9
(ii) Autonomous consumption = 200
(iii) Level of income = 10000

Answer 1

Given,
Income (Y) = 10,000
MPC (c) = 0.9

Autonomous Consumption `(bar"C")` = 200

We know, Y = C + I

Also, C = `barC` + cY
So, C = 200 + 0.9 (10,000)
C = 9200
Now, Y = C + I
I = 10,000 - 9,200
I = 800.