Question

In a two sector economy are as
consumption functions
follows-
Y=C+I ; C = 40+0.75Y

If the investment's are Rs 60 crore , calculate
(a) Equilibrium level of income
(b) Level of consumption at equilibrium
(c) Savings at equilibrium​

Answer 1

Answer:

(a) At equilibrium level of output,

AS=AD

Y= C+I

=> Y= 50 + 0.8 Y + I

=> Y - 0.8 Y = 50 + 50

=> 0.2 Y = 100

=> Y = 100/ 0.2 = 500 crores

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(b) Level of consumption at equilibrium income of 500 crores

C=50 + 0.8 ( 500)

= 50 + 400

= 450

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(c) Saving at equilibrium level of income,

Savings= Investment

= 50 crores.

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