Question

Calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous consumption is ₹ 500 crores, ex-ante investments are ₹ 4000crores and equilibrium level of Income of the economy is ₹ 18,000 crores.

Answer 1

We know that consumption function is: `" " C = barc + MPC.Y`
At euilibrium level of Income in the economy Y = C + 1
Given, Autonomous Consumption (`barC`) = ₹ 500 crores and
Ex-ante Investments (I) = ₹ 4000 crores
18,000 = 00 MPC(18,000) 4,000
MPC(18,000) = 18000 – 400
MPC = 13,500/18,000
`MPC = 0.75`