What will be the value of aggregate demand in an economy with the following data:
| Autonomous investment | 200 crore |
| Marginal propensity to save | 0.3 |
| Level of income | 5000 crore |
| Autonomous consumption expenditure | 50 crore |
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 3750
The aggregate demand function is:
AD = C + I
AD = c̅ + bY + I
AD = 50 + 0.7 (5000) + 200
AD= 50 + 3500 + 200
AD = 3750
*Note* ( MPC = 1 - MPS )