The consumption function in an economy is C = 80 + 0.6Y and investment level in an economy is 800 crores. State whether the following are true or false:
(a) Equilibrium level of income is 2100 crores.
(b) 275 crores is the total change in income if investment rises by 150 crores.
(c) Value of multiplier is 2.5.
C = 80 + 0.6Y
(a) At equilibrium level, AD = AS
C + I = Y
80 + 0.6Y + 800 = Y
Y = 2200
Change in Investment = 150 crores
K (Multiplier) = 11−MPC
= 11−0.6 = 2.5
K = △Y△I
2.5 = △Y150
△Y = 375
K = 2.5