In an economy, \[\mathbf{S}=-\mathbf{100}+\mathbf{0}.\mathbf{6Y}\] is the saving function, where S is saving and Y is National Income. If investment expenditure is 1100. Calculate: |
(i) Equilibrium level of National Income |
(ii) Consumption expenditure of equilibrium level of National Income. |
Answer:
Saving function, \[S=-100+0.6Y\] Investment, I = 1,100 Y = National Income (i) We know that S = I Given \[S=-100+0.6Y\] \[\Rightarrow \] \[I=-100+0.6Y\] \[\Rightarrow \] \[1,100=-100+0.6Y\] \[\uparrow \Rightarrow \] \[1,200=0.6Y\]| \[Y=1,200\times \frac{10}{6}=2,000\] \[\therefore \] Equilibrium level of National Income, Y= 2,000 (ii) \[Y=C+I\] \[2,000=C+I\] \[\Rightarrow \]\[C=2,000-1,100=900\] \[\therefore \] Consumption expenditure at equilibrium level = 900
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