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Adjustment in Partner's Capital A/c

The consumpti...

Question

The consumption function of an economy is given as: C = 200 + 0.75 Y. If planned investments are Rs. 500 crores, calculate equilibrium level of national income. (52,800 crores)

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Solution

At equilibrium level of output,

AS=AD

Y= C+I

=> Y= 200+ 0.75 Y + I

=> Y - 0.75 Y = 200+ 500

=> 0.25 Y = 700

=> Y = 700/ 0.25 = Rs. 2,800 crores

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