question_answer

Calculate   autonomous   consumption expenditure from the following data about an economy which is in equilibrium.

National income = 1200

Marginal propensity to save = 0.20

Investment expenditure =100

Answer:

We

\[Y=C+I\]

where,

I is investment expenditure which is given as100. Y is income which is given as 1200 and, \[C=\overline{C}+cY\]here, \[\overline{C}\] is autonomous consumption expenditure is marginal propensity to consumer, \[c=1-\] marginal propensity to consume (mps) so,\[c=1-0.20=0.80\]. Thus, putting the values in the equation, \[Y=\overline{C}+cY+I\] or, \[1200=\overline{C}+0.80\times 1200+100\] or\[C=12001060=140\]. Thus, autonomous consumption expenditure is 140.