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Using the equation of consumption functi...

Using the equation of consumption function: C = `barc` + b(Y), calculate consumption expenditure at the income level of ₹ 500 crores, if autonomous consumption is ₹ 40 crores and 40% of additional income is saved.

Text Solution

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The correct Answer is:
Consumption Expenditure (C ) = ₹ 340 crores
Given: MPS = 0.4 `" "` (as 40% of additional income is saved)
MPC or b = 1- MPS = 1-0.4 = 0.6
Given: Autonomous Consumption `(barc)` = ₹ 40 crores, Income (Y) = ₹ 500 crores
Putting the values of b, `barc`and Y in the consumption function, we get:
C = 40+0.6`xx`500= ₹ 340 crores
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