Question

If in an economy: (a) Consumption function is given by C = 100 + 0.75 Y, and (b) Autonomous Investment Is 150 crores. Estimate (I) Equilibrium level of Income and (ii) Consumption and Savings at the Equilibrium Level of Income.
((i) Rs. 1,000 crores; (ii) Consumption = Rs. 850 crores, Savings= Rs. 150 crass)

Answer 1

(I) Consumption Function is C = 100+ 0.75 Y where Y in the income in the economy.

At equilibrium level of income,

AS=AD

Y= C+I

=> Y= 100 + 0.75 Y + 150

=> Y - 0.75 Y = 100 + 150

=> 0.25 Y = 250

=> Y = 250/ 0.25 = Rs. 1,000 crores

(II) Consumption Function is C = 100+ 0.75 Y where Y in the income in the economy.

At equilibrium level of income,

C= 100 + 0.75 ( 1,000)

= 100 + 750

= Rs. 850 crores

Savings = Investments

= Rs. 150 crores