Question

Calculate investment expenditure from the following data about an economy which is in equilibrium:
National income = 1000
Marginal propensity to save = 0.25
Autonomous consumption expenditure = 200

Answer 1

As we know that

Y=C+I

or 

`Y=bar C+cYd+I`                  (i)

`C=bar C+cY`

Given that

`bar C`is autonomous consumption expenditure = 200

c is marginal propensity to consume 1 mps

When mps = 0.25

c=1-0.25=0.75

Income (y) = 1000

Apply all the values in equation (i)

1000=200+0.75x1000+I

I+1000-200+750=50

Thus, investment expenditure is 50.