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Question
Calculate investment expenditure from the following date about an economy which is in equilibrium :
National Income = 1000
Marginal propensity to save = 0.20
Autonomous consumption expenditure = 100
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Solution
Given that
National income (Y) = 1000
Marginal propensity to save (MPS) = 0.20
Autonomous consumption expenditure = 100
MPC(c) = 1 - MPS = 1 - 0.20 = 0.8
As we know that
Y= C + I
Since `C = barC + cY`
We have
`Y = barC + cY + I`
`1000 = 100 + 0.8(1000) + I`
1000 = 900 + I
I = 100
Therfore, investment expenditure is Rs 100.
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