Question

. In an economy, C= 200+0.5Y is the consumption function and Y is the national income. Investment expenditure is 400 crore . Is the economy in equilibrium at an income of 1500 crore. Justify. ​

Answer 1

Solution :

At the equilibrium level

Y=C+I

Substituting the values

Y={200+0.5Y}+400

Y−0.5Y=600

0.5Y=600

Y=6000.5=1,200

The equilibrium level of income is Rs. 1,200 crores. The given income Rs. 1,500 crore is greater than equilibrium level of income. Therefore, the economy is not equilibrium.