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National Income Accounting
An economy is in equilibrium. From the following data about an economy calculate autonomous consumption.
(i) Income = 5000
(ii) Marginal propensity to save = 0.2
(iii) Investment expenditure = 800
Given that
Income (Y) = 5000
Marginal propensity to save (s) = 0.2
Therefore, marginal propensity to consume = 1 -0.2 =0.8
I= 800
As we know that
Y =C+I
C =Y -1
C = 5000 – 800 = 4200
C= C' - cY
4200 = C' + 0.8(5,000)
C' = 200
Thus, autonomous consumption is 200.
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