question_answer

Calculate investment expenditure from the following data about an economy which is in equilibrium:

National income                                  = 1000

Marginal propensity to save                 = 0.25

Autonomous consumption expenditure = 200

Answer:

We know,

\[Y=C+I\]

\[C=\overline{c}+cY\]

\[Y=\overline{c}+cY+1\]

Where   \[\overline{c}\] = autonomous consumption (200)

c = marginal propensity to consume

(\[1-MPS=1-0.25=0.75\])

Y = national tricome = Rs. 1000

I = Investment expenditure by putting the value

\[1000=200+0.75\times ~1000+I\]

\[I=1000-(200+750)\]

\[=1000-950\]

I = Rs. 50