Question

You are given the following information about a closed economy with no government: Consumption = 115 + 0.6Y Investment = 550 Use the above information to answer the questions that follow:
Q.4.1 Calculate the value of autonomous spending

Answer 1

Solution:

Value of autonomous spending = Y

$Y = C+I$

$Y = 115+0.6Y+550$

$Y = 115+550+0.6Y$

$Y = 665+0.6Y$

$Y-0.6Y=665$

$0.4Y=665$

$Y = \frac{665}{0.4}$

$Y = 1663$