What will be the value of MPC considering the economy to be in equilibrium, when national income is Rs 5,000 crore , investment expenditure is Rs. 300 crore and autonomous consumption expenditure is Rs 100 crore?
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: None of the above
At equilibrium Y = C + I,
C (Consumption Function)= A + MPC * Y
where A= Autonomous Consumption = Rs 100 Crore
I= Investment =Rs 300 crore
Y= Income = 5000 Crore
Y = A + MPC * Y + I
5,000 = 100 + MPC* (5,000) + 300
5,000 = 400 + MPC* (5,000)
MPC *(5,000) = 4,600
MPC= \(\frac{4,600 }{ 5,000}\)
MPC = 0.92