question_answer

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

Answer:

Given,

National Income (Y) = 1000

Marginal propensity to save (MPS) = 0.20

Autonomous consumption expenditure = 100

\[MPC\left( c \right)=1-MPS-1-0.20=0.8\]

As we know in equilibrium,

\[Y=C+I\]

Since,    \[C=C+cY\]

We        \[Y=C+cY+I\]

\[1000=100+0.8(1000)+1\]

\[1000=900+I\]

\[\Rightarrow \]   \[1=100\]

Therefore, investment expenditure is Rs. 100.