Question

Calculate Autonomous Consumption Expenditure from the following data about an economy which is in equilibrium.

National Income = 1,200

Marginal Propensity to Save =  0.20

Investment Expenditure = 100

Answer 1

Y = C + I

and C = C bar + b(Y)

or Y = C bar + b(Y) + I

MPC = 1 - MPS

= 1 - 0.2 = 0.8

1,200 = C bar + 0.8 x 1,200 + 100

or C bar = 1,200 - 960 - 100

= 1,200 - 1,060

= Rs. 140