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Question : 2
Total: 3
An economy is in equilibrium. Find 'autonomous consumption' from the following:
National income= 1 , 000
Marginal propensity to consume= 0.8
Investment expenditure= 100
National income
Marginal propensity to consume
Investment expenditure
Solution:
Given
Y = 1 , 000
MPC ( c ) = 0.8
I = 100
Autonomous consumption( C ) =
We know that at equilibrium,
Y = C + I
i.e. 1 , 000 = C + c Y + I
⇒ 1 , 000 = C + 0.8 × 1 , 000 + 100
⇒ 1 , 000 = C + 900
⇒ 1 , 000 − 900 = C
so, C = 100
Autonomous consumption
We know that at equilibrium,
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