Question

Estimate the value of ex-ante when autonomous investment and consumption expenditure (A) is 50 crores and MPS is 0.2 and level of income is 300 crores

Answer 1

MPCC=1-MPS=-1-0.2=0.8
In a two sector mode, AD is a function of Consumption (C ) and investmenet I It means AD=AC=C+I
Also, Consumption Function is given `C=bar(c )+b(Y)`
Where, c=Autonomous Consumption,b=MPC, and Y=income
Investments are assumed to be autonomous investments,i.e.=I
It means `AD=bar(c )+b(Y) or AD=bar(c ) +overset(I)+b(Y)`
AD=A+Y[Total Autonomous Expenditure(A)`=bar(c )+bar(I)`
AD=50+(0.8(300)
AD=290Crores