Question

In an economy C= 200 + 0.5 Y is the consumption function where C is the

consumption expenditure and Y is the national income. Investment

expenditure is ₹ 400 crores.

Is the economy in equilibrium at an income level ₹1500 crores? Justify your

answer.​

Answer 1

Answer:

(i) At equilibrium,

 AS=AD

Y= C+I 

=> Y= 200 + 0.75 Y + I 

=> Y - 0.75 Y = 200 + 4,000

=> 0.25 Y = 4,200

=> Y = 4,200/ 0.25 = 16,800

(ii) Consumption Function, C = 200+ 0.75 Y where Y in the income in the economy. 

So at national income 16,800 , consumption expenditure is 

 C = 200+ 0.75 ( 16,800) 

    = 200 + 12,600

    = 12,800