Question

(a) Distinguish between Autonomous Consumption and Induced Consumption.

(b) From the {ollowing data about an economy, Calculate its equilibrium level of income.

(i) Marginal Propensity to Consume = 0.5

(ii) Autonomous Consumption = 300

(iii)Investment = 6,000

Answer 1

(a) Autonomous Consumption- The expenditure which is not influenced by income is called Autonomous Consumption. or it refers to minimum level of Consumption even when income is zero. It is indicated by C bar  in consumption function : C = C bar  + bY

Induced Consumption- The consumption expenditure which changes with change in income is called induced Consumption.