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Calculate autonomous consumption expenditure from the following data about an economy which is in equilibrium.
National Income = Z 1000
Marginal propensity to save = 0.2 Investment expenditure = ! 150
(1)Z 200
(2)Z 150
(3)Z 950
(4)Z 50
1
2
3
4
To calculate autonomous consumption expenditure, use the following formula for equilibrium in the economy:
$$ C = a + cY_d $$
Where:
- \( C \) is total consumption
- \( a \) is autonomous consumption
- \( c \) is the marginal propensity to consume (\( 1 - \text{marginal propensity to save} \))
- \( Y_d \) is disposable income, which equals national income in this case
For the given data:
- National Income (Y) = 1000
- Marginal Propensity to Save = 0.2, so \( c = 1 - 0.2 = 0.8 \)
- Investment Expenditure = 150
Let's make some calculations:
- Aggregate Expenditure (\( AE \)) is \( C + I \)
- At equilibrium, \( AE = Y \), so:
$$ a + 0.8 \times 1000 + 150 = 1000 $$
Rearrange the equation to solve for \( a \):
$$ a = 1000 - 150 - 0.8 \times 1000 $$
$$ a = 1000 - 150 - 800 $$
$$ a = 50 $$
Now, let's review the options:
- Option 1: Z 200
- Option 2: Z 150
- Option 3: Z 950
- Option 4: Z 50
Therefore, the correct option is:
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