#### Question

From the data given below about an economy, calculate (a) investment expenditure and (b) consumption expenditure.

(i) |
Equilibrium level of income |
5,000 |

(ii) |
Autonomous consumption |
500 |

(iii) |
Marginal propensity to consume |
0.4 |

#### Solution

**(a) Investment expenditure**We can denote consumption function as

C = C + (c)Y

Where, C ia autonomous consumption which is given as 500,

Y is equilibrium level of income which is given as 5000,

and,c is marginal propensity to consume which is given as 0.4

Substituting the values in the formula

C = 500 + (0.4) 5,000

C = 2,500

We know, at equilibrium level, Y = C + I

Thus, I = Y- C

or, I= 5000 - 2500 = 2500

** (b) Consumption expenditure**As we know,

C = C + (c)Y

C = 500 + (0.4) 5000 = 2500

Is there an error in this question or solution?

Solution From the Data Given Below About an Economy, Calculate (A) Investment Expenditure and (B) Consumption Expenditure. Concept: Methods of Calculating National Income - Expenditure Method.