In an economy C= 200 + 0.75 Y is the consumption function where C is consumption expenditure and Y is national income. Investment expenditure is 4,000. Calculate equilibrium level of income and consumption expenditure.
(i) At equilibrium,
=> Y= 200 + 0.75 Y + I
=> Y - 0.75 Y = 200 + 4,000
=> 0.25 Y = 4,200
=> Y = 4,200/ 0.25 = 16,800
(ii) Consumption Function, C = 200+ 0.75 Y where Y in the income in the economy.
So at national income 16,800 , consumption expenditure is