From the following data about an economy, calculate (a) equilibrium level of national income and (b) total consumption expenditure at equilibrium level of national income. |
(i) C = 200 + 0.5Y is the consumption function where C is consumption expenditure and Y is national income. |
(ii) Investment expenditure is 1,500. |
Answer:
Given, consumption function, \[C=200+0.5Y\], Investment, I = 1,500 We know that, \[Y=C+I\] \[Y=200+0.5Y+1,500\] or \[Y=1,700+0.5Y\] or \[0.5Y=1,700\] or \[Y=1,\,7000\,\times \frac{10}{5}=3,400\] (a) Equilibrium level of National Income, Y = 3,400 (b) Total Consumption Expenditure, \[C=200+0.5Y\] \[=200+0.5(3,400)\] \[=200+1,700=1,900\]
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