Question

Suppose the consumption equals c= 40 + 0.75 y, Investment equals I = Rs 60 4

and Y=C + I. Find i) Equilibrium level of income ii) The level of consumption at

equilibrium iii) level of saving at equilibrium.​

Answer 1

Answer:

here is an example

Explanation:

(a) 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