Question

Calculate 'Marginal Propensity to Consume' from the following data about an economy which is in equilibrium:
National income = 800
Autonomous consumption expenditure = 100
Investment expenditure = 100

Answer 1

Given that
National Income (Y) = 800
Autonomous consumption expenditure(C) = 100
Investment expenditure (I) = 100
As we know that

Y = C + I

`C = barC + cY`

`Y = barC + cY + I`

800 = 100 + C(800) + 100

600 = 800C

C = 0.75

Therefore, Marginal Propensity to Consume (MPC) is 0.75