Suppose national output is £3500, autonomous consumption is £200 and the marginal propensity to consume (MPC) is 0.8 in a closed economy with no government sector. What is the level of investment in this economy?
A) £2500
B) £750
C) £500
D) £3300

Question

Quizplus · Accepted Answer

In a closed economy with no government, the national output (Y) is equal to consumption (C) plus investment (I). The consumption function is C = autonomous consumption + MPC * Y. Here, C = 200 + 0.8 * 3500 = 200 + 2800 = 3000. Therefore, I = Y - C = 3500 - 3000 = 500.

Suppose National Output Is £3500, Autonomous Consumption Is £200 and the Marginal