question_answer

An economy is in equilibrium. Find 'autonomous consumption' from the following:

National income = 1,000

Marginal propensity to consume = 0.8

Investment expenditure = 100

 

Answer:

Given

Y = 1,000

MPC (c) = 0.8

I = 100

Autonomous consumption (\[\overline{C}\]) =??

We know that at equilibrium,

\[Y=C+I\]

i.e.         \[1,000=\overline{C}+cY+I\]

\[\Rightarrow \]   \[1,000=\overline{C}~+\text{ }0.8\times ~1,000+100\]

\[\Rightarrow \]   \[1,000=\overline{C}+900\]

\[\Rightarrow \]   \[1,000-900=\overline{C}~\]

so,            \[\overline{C}\] = 100