Question

An economy is in equilibrium. Find Marginal Propensity to Consume from the following:
National income = 2000
Autonomous consumption = 400
Investment expenditure = 200

Answer 1

National income (Y) = 2000

Autonomous consumption expenditure = `bar(C) = 400`

Investment expenditure (I) = 200

We know that at equilibrium

` C = bar(C) + MPC(Y)`

where,

`barC` represents autonomous consumption expenditure

MPC represents  marginal propensity to consume

So,

`Y = bar(C) + MPC(Y) + I`

With thegiven values

2000 = 400 + MPC(2000) + 200

2000 = 600 + 2000MPC

MPC = 0.7

Thus,marginal propensity to consume is 0.7