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Determination of Income and Employment
Question
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Calculate investment expenditure from the following data about an economy which is in equilibrium:
National income = 1000
Marginal propensity to save = 0.25
Autonomous consumption expenditure = 200

Answer

We know,
Y=C+I 
or, Y=C+cYd+I ...
where, C=C+Cy
here, C is autonomous consumption expenditure=200
c is marginal propensity to consume=1-mps
As MPS is given 0.25
so, c=1 - 0.25=0.75 and
Y is income = 1000
Thus putting all the values in equation,
1000 = 200+.75*1000+I
Or I = 1000-200+750
Or I =50
Thus investment expenditure is 50.

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