Question

Suppose an economy is in equilibrium. From the following data, calculate Investment Expenditure in the economy: 
National Income = Rupees 40, 000 crore
Marginal Propensity to Consume (MPC) = 0.8 
Autonomous Consumption  (c) = Rupees 100 crore

Hint:

Use the equilibrium condition \(Y = C + I\) to calculate investment expenditure when income and consumption are given.

Answer 1

Equilibrium in the economy is achieved when: 
 

\[Y = C + I\]

where \( C = c + {MPC} \times Y . \)

Substituting the given values:
 

\[C = 100 + 0.8 \times 40,000 = 100 + 32,000 = \text{Rupees} 32,100 \, {crore}.\]

 From the equilibrium condition: 
 

\[I = Y - C = 40,000 - 32,100 = rupee 7,900 \, {crore}.\]

Thus, Investment Expenditure is \(Rupees 7,900 crore\).