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`C = 100 + 0.4Y` is the Consumption Function of an economy where C is Consumption Expenditure and Y is National Income. Investment expenditure is 1100. Calculate (i) Equilibrium level of National Income (ii) Consumption expenditure at equilibrium level of National Income |
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Answer» Given, Y = Nation Income, Consumption Function, `C = 100 + 0.4Y`, Investment Expenditure, I = 1,100 (i) Now, `Y = C + I` `:. Y = 100 + 0.4 Y + 1,100 or y - 0.4 y = 1200 or 0.6 Y = 1,200` `:.` Equilibrium level of National Income, `Y = 1,200 xx (10)/(6) = 2,000` (ii) Now, `C = 100 + 0.4Y or C = 100 + 0.4 (2,000)` Consumption, `C = 100 + 800 = 900` |
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