question_answer

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

(i) Equilibrium level of income                        5000

(ii) Autonomous consumption                         500

(iii) Marginal propensity to consume               0.4

Answer:

Income Y = 5,000; Autonomous Consumption,

a = 500; MPC, \[\overline{C}\] = 0.4

Income = Y = Rs. 5000

Autonomous consumption = \[\overline{c}\] Rs. 500

MPC = c = 0.40

Y = c + I

C = \[\overline{c}\]+ cY

\[c=500+0.40\times 5000\]

\[c\text{ }=\text{ }500\text{ }+\text{ }2000\]

c = 2500

Y = C + I

5000 = 2500 + I

I = 2500

I = Rs. 2500

c = Rs. 2500