Question

Find income level if S=-75+0 .25Y and saving level is 100 crore

Answer 1

Explanation:

The consumption function is C= 75+0.75 Y where Y is the income at different level in the economy. 

Income = consumption + savings 

=> Savings = Income - consumption 

=> S = Y- C

=> S = Y - ( 75 + 0.75 Y)

=> S = Y- 75 - 0.75 Y

=> S = - 75 + Y ( 1 - 0.75) 

=> S = -75 + 0.25 Y 

Therefore, the saving function is S= -75 + 0.25 Y  where autonomous savings= -75 crores, MPS= 0.25 and Y is income at all levels. 

At equilibrium level of output,

 AS=AD

Y= C+I 

=> Y= 75+ 0.75 Y + 100 

=> Y - 0.75 Y = 75+ 100

=> 0.25 Y = 175

=> Y = 175/ 0.25  = 700 crores

At equilibrium level of Income, consumption expenditure is 

Savings = Investment

              = 100 crores