question_answer

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