If, MPS=0.20, then.
MPC= 1-MPS= 1-0.20= 0.80.
Consumption Function is C = c + 0.80 Y where Y in the income in the economy and c= Autonomous consumption.
At equilibrium level of output,
AS=AD.
Y= C+I.
=> 1,200 = c + 0.80 (1,200) + 100.
=> 1,200 = c+ 960 + 100.
Answer:
C = a +bY. In this formula a is the level of autonomous consumption, where b is the marginal propensity to consume out of income.
