question_answer

An economy is in equilibrium. From the following data about an economy calculate autonomous consumption.

(a) Income = 5000

(b) Marginal propensity to save = 0.2

(c) Investment expenditure = 800

Answer:

Given that,

Income (y) = 5000

Marginal Propensity to save (s) = 0.2

Therefore, marginal propensity to consume

\[=1MPS\]

\[=10.2=0.8\]

\[\therefore \]                  \[Y=C+by+I\]

\[\Rightarrow \]           \[5000=C+0.8\times 5000+800\]

\[\Rightarrow \]           \[5000=C+4000+800\]

\[\Rightarrow \]           \[5000=C+4800\]

\[\Rightarrow \]\[50004800=C\]

\[\Rightarrow \]              200 = C

\[\therefore \] Autonomous Consumption = 200