Question

In a two sector economy, the saving function is given as: $S=-10+0.2Y$ and investment function is expressed as: $I=-3+0.1Y$. Calculate the equilibrium level of income?

Answer 1

At equilibrium level of income, Savings = investment
=>−10+0.2Y=−3+0.1Y−10+0.2Y=−3+0.1Y
=>0.2Y−0.1Y=−3+100.2Y−0.1Y=−3+10
=>0.1Y=70.1Y=7
=> Y=70Y=70
Equilibrium level of Income = 70.