Saved Bookmarks
| 1. |
An economy is in equilibrium. From the following data about an economy calculate autonomous consumption. (i) Income = 5,000 (ii) Marginal propensity to save = 0.2 (iii) Investment expenditure = 800 |
|
Answer» At equilibrium level of national income, investment and savings are equal. Thus Savings = Investment = 800 Marginal Propensity to Consume (MPC) + Marginal Propensity to Save (MPS) = 1 MPC + MPS = 1 MPC = 1 -0.2 = 0.8 National Income = Consumption + Savings Consumption = National Income – Savings = 5,000 – 800 = 4,200 Consumption = Autonomous consumption + (MPC x National Income) Autonomous consumption = Consumption – (MPC x National Income) = 4,200 – (0.8 x 5,000) = 4,200 – 4,000 = 200 |
|