An economy is characterized by following data:
C= 30Cr+0.75Yd [note: Yd-Y-T]
I= 10ocr
G= 200 cr
T= 50 cr
Calculate an equilibrium level of income & consumption
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In simple language equilibrium level of income means that the economy is having an equal amount of production and market demand.
- For the calculation of the equilibrium, it is important to remember that to lead to equilibrium our Aggregate demand must be equal to aggregate supply
- The formula for the same is:
Y = C+I+G
Here,
C = 30 + 0.75 Yd
Yd = Y-T
G = 200
T = 50
Putting the values in the formula:
Y = 30 + 0.75(Y-50) + G+ I
= 30 + 0.75 Y - 37.5 + 200 + 100
Y - 0.75 Y = 30 + 262.5
0.25 Y = 292.5
Y = 292.5/0.25
= 1170
- For calculating consumption we need to put the values in the formula: C = 30 + 0.75 ( Y - T)
C = 30 + 0.75 ( 1170- 50)
= 30 + 0.75 × 1120
= 30 + 840
= 870 Cr
Thus, Consumption is 870 Cr
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