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Question : 4
Total: 5
Calculate marginal propensity to consume from the following data about an economy which is in equilibrium :
National Income= 1 5 0 0
Autonomous consumption expenditure= 300
Investment expenditure= 300
National Income
Autonomous consumption expenditure
Investment expenditure
Solution:
We know that in equilibrium,
Y = C + I
where,
I is investment expenditure, given as 300
Y C = C + cY
here,C 300 , c
Thus, putting the values in the equation, we haveY = C + c Y + I
or,1500 = 300 + c × 1500 + 300
or,c =
= 0.6 .
Thus, marginal propensity to consume is 0.6 .
where,
I is investment expenditure, given as 300
here,
Thus, putting the values in the equation, we have
or,
or,
Thus, marginal propensity to consume is 0.6 .
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