An economy is in equilibrium. Find 'autonomous consumption' from the following: |
National income = 1,000 |
Marginal propensity to consume = 0.8 |
Investment expenditure = 100 |
Answer:
Given
Y = 1,000
MPC (c) = 0.8
I = 100
Autonomous consumption (\[\overline{C}\]) =??
We know that at equilibrium,
\[Y=C+I\]
i.e. \[1,000=\overline{C}+cY+I\]
\[\Rightarrow \] \[1,000=\overline{C}~+\text{ }0.8\times ~1,000+100\]
\[\Rightarrow \] \[1,000=\overline{C}+900\]
\[\Rightarrow \] \[1,000-900=\overline{C}~\]
so, \[\overline{C}\] = 100
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