Question

Section B 7. S =- 80 +0.25Y, and import function is given as 100 -0.05Y then find: (a) At what level equilibrium level of income and consumption level will occur? (b) If govt. expenditure increase by 55 Cr. And govt. imposes the lumpsum taxes worth 15 Cr., what impact it will have on consumption and income ? (c) What will happen to imports if government raises the import duty by 10%? Calculate the multipliers of government expenditure and foreign Trade​

Answer 1

Answer:

Consumption Function is C = 40+ 0.75 Y where Y in the income in the economy.

At equilibrium level of income,

AS=AD

Y= C+I

=> Y= 40 + 0.75 Y + 60

=> Y - 0.75 Y = 40 + 60

=> 0.25 Y = 100

=> Y = 100/ 0.25 = Rs. 400 crores

(b) Level of consumption at equilibrium income of 400 crores

C=40 + 0.75 ( 400)

= 40 + 300

= 340 crores

(c) Saving at equilibrium level of income,

Savings= Investment

= 60 crores

Answer 2

Answer:

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