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: = ̅+ .

At equilibrium level of Income in the economy Y = C + I

Given, Autonomous Consumption (̅) = ₹ 500 crores and

Ex-ante Investments (I) = ₹ 4000 crores

18,000 = 500 + MPC(18,000) + 4,000

MPC(18,000) = 18000 – 4500

MPC = 13,500/18,000

MPC = 0.75