CameraIcon
CameraIcon
SearchIcon
MyQuestionIcon


Question

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.


Solution

(i) At equilibrium,

 AS=AD

Y= C+I 

=> 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 
 C = 200+ 0.75 ( 16,800) 
    = 200 + 12,600
    = 12,800

Economics

Suggest Corrections
thumbs-up
 
0


similar_icon
Similar questions
View More


similar_icon
People also searched for
View More



footer-image