The information below relates to a closed economy without a government: Autonomous consumption = R285 million Autonomous investment = R300 million Marginal propensity to consume = 0

Business Dec 10, 2020

The information below relates to a closed economy without a government:

Autonomous consumption = R285 million
Autonomous investment = R300 million
Marginal propensity to consume = 0.4

Calculate the level of autonomous spending.

Expert Solution

The level of autonomous spending is R585 million.

The formula used for autonomous spending is given below:

Autonomous spending = Autonomous consumption + Autonomous investment
Autonomous spending = R285 million + R300 million
Autonomous spending = R585 million

Note:

The marginal propensity to consume (0.4) found in the question is used to determine the size of the multiplier; it's irrelevant for determining the amount of autonomous spending.

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