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Question : 14
Total: 19
Calculate Marginal Propensity to Consume from the following data about an economy which is in equilibrium:
National income= 2 0 0 0
Autonomous consumption expenditure= 200
Investment expenditure= 100
National income
Autonomous consumption expenditure
Investment expenditure
Solution:
Given,
National Income( Y ) = 2000
Autonomous consumption expenditure= 200
Investment expenditure= 100
As we know in equilibrium,
Y = C + I
Since,C = C + c Y
We getY = C + c Y + I
2000 = 200 + c ( 2000 ) + 100
1700 = 2000 c
⇒ c = 0.85
Therefore, marginal propensity to consume is 0.85 .
National Income
Autonomous consumption expenditure
Investment expenditure
As we know in equilibrium,
Since,
We get
Therefore, marginal propensity to consume is 0.85 .
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