Question

Calculate autonomous consumption expenditure from the following data about an
economy which is in equilibrium.
National income = 1200
Marginal propensity to save = 0.20
Investment expenditure = 100

Answer 1

We know that

Y = C + I

where 

I(Investment expenditure) = 100

Y(Income) = 1200

Marginal propensity to save (s)= 0.20

C = `barC + cY`

where

`barC` = autonomous consumption expenditure

c = marginal propensity to consume

x = 1 - marginal propensity to save

= 1 - 0.20 = 0.80

Thus applying the values in the eqaution

`Y = barc + cY + I`

`1200 = barC + 0.8 xx 1200 + 100`

`barC = 1200 - 1060 = 140`

Thus autonomous consumptin expendture is 140