Question

Calculate Marginal Propensity to Consume from the following data about an economy

Which is an equilibrium:

National income = 2000

Autonomous Consumption expenditure = 200

Investment expenditure = 100

Answer 1

Given that

National income (Y) = 2000

Autonomous consumption expenditure = 200

Investment expenditure = 100

As we know that

Y = C + I

Since `C = barC + cY` we have

`Y = barC + cY + I`

By substituting the given values,we get

`2000 = 200 + c(2000) + 100`

`1700 = 2000c`

c = 0.85

Therfore, the marginal propensity to consume is 0.8