Suppose, an economy is in equilibrium. From the following data, calculate investment expenditure in the economy : (a) National Income (Y) = Rs. 10,000 crore (b) Marginal Propensity to Consume (MPC) = 0.8 (c) Autonomous Consumption (c̄) = Rs. 100 crore

Question

Accepted Answer

Given: Y = ₹10,000 crore, MPC = 0.6

At equilibrium, Y = C + I
We know: C = c̄ + bY
Y = c̄ + bY + I
I = Y - c̄ - bY
I = Y(1-b) - c̄

Substituting values:
I = 10000(1-0.6) - c̄
I = 10000(0.4) - c̄
I = 4000 - c̄

If we assume autonomous consumption is given (e.g., c̄ = 500):
I = 4000 - 500 = ₹3,500 crore

Alternatively, using S = I:
S = Y - C = Y - (c̄ + 0.6Y) = -c̄ + 0.4Y
S = -c̄ + 0.4(10000) = -c̄ + 4000
At equilibrium: S = I
I = -c̄ + 4000

The investment expenditure depends on the autonomous consumption value. If c̄ = ₹500 crore, then I = ₹3,500 crore.