question_answer

Calculate Marginal Propensity to Consume from the following data about an economy which is in equilibrium:

National income                                              = 2000

Autonomous consumption expenditure           = 200

Investment expenditure                                   = 100

Answer:

Given,

National Income (Y)                                            = 2000

Autonomous consumption expenditure       = 200

Investment expenditure                                        =100

As we know in equilibrium,

\[Y=C+I\]

Since,                \[C=C+cY\]

We get               \[Y=C+cY+I\]

\[2000=200+c\left( 2000 \right)\text{ }+\text{ }100\]

\[1700=2000c\]

\[\Rightarrow \]               \[c=0.85\]

Therefore, marginal propensity to consume is 0.85.