Question

Consumption =445+0,75y investment =250 1.1 calculate the value of autonomous spending 1.2calculate the value of multiplier 1.3 calculate equilibrium level of income

Answer 1

$C=A+MD$

Where,

C- consumer spending.

A- autonomous consumption.

M- Marginal Prospensity to Consume.

D- Disposable Income.

We are given:

$Consumption=445+0.75y$

Therefore:

(1)

Value of autonomous spending=445.

(2)

Value of multiplier = marginal propensity to consume = 0.75.

(3)

Equilibrium Level of Income:

$Y= Consumption + Investment$

$Y=445+0.75Y+250$

$Y-0.75Y=445+250$

$0.25Y=695$

$Y= 2,780.$