Question

Suppose the level of autonomous investment in an economy is rs.200 crores and consumption function of the economy is: c=80+0.75y . What will be the equilibrium level of income ?

Answer 1

Answer:

Rs 1120 Crores

Explanation:

Equilibrium income = Autonomous investment + Autonomous consumption

From the given question we have the consumption function and the autonomous investment.

The equilibrium income y will be :

Y = C + I

C = autonomous consumption

I = autonomous investment

Y = 80 + 0.75y + 200

y - 0.75y = 280

0.25y = 280

y = 280/0.25

y = 1120

The equilibrium income is therefore 1120 crores.

Our answer is therefore :

Rs 1120 crores