Question

Calculate investment expenditure from the following data about an economy which is in equilibrium:
National income = 1500
Autonomous consumption expenditure = 300
Investment expenditure = 300

Answer 1

As we know that

Y = C + I

where

I (Investment expenditure) = 300

Y (National income) = 1500

`C = barC + cY`

where

`barC` (autonomous expenditure)= 300

c = marginal propensity to consume

Thus, applying all the values in equation

 

`C = barC + cY + I`

`1500 = 300 + c xx 1500 + 300`

`c = (1500 - 600)/1500 = 0.6`

Thus, marginal propensity to consumeis 0.6