Question

Given the consumption function, C=150+0.6Y, where C=Consumption expenditure, Y= Income

and Investment expenditure=Rs. 2000. Calculate: (4)

(i) Equilibrium level of national income.

(ii) Consumption expenditure at equilibrium level of national income.

(iii) Saving at equilibrium level of national income.​

Answer 1

Answer:

ECONOMICS

From the following data about an economy, calculate: (a) Equilibrium level of national income; and (b) Total consumption expenditure at equilibrium level of national income.

(i) C =200 + 0.5 Y is the consumption function where C is consumption expenditure and Y is national income.

(ii) Investment expenditure is 1,500.

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ANSWER

(i) At equilibrium,

AS=AD

Y= C+I

=> Y= 200 + 0.5 Y + I

=> Y - 0.5 Y = 200 + 1,500

=> 0.5 Y = 1,700

=> Y = 1,700/ 0.5 = 3,400

(ii) Consumption Function, C = 200+ 0.5 Y where Y in the income in the economy.

So at national income 3,400 , consumption expenditure is

C = 200+ 0.5 ( 3,400)

= 200 + 1,700

= 1,900

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