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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 + 0.5 Y is the consumption function where C is consumption expenditure and Y is national income. (ii) Investment expenditure is 1,500 |
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Answer» Solution :Given, consumptin function, C= 200 + 0.5Y. Investment, I = 1,500 We know that, `Y = C + I` `Y = 200 + 0.5 Y + 1,500 or Y = 1,700 + 0.5Y` or `0.5Y = 1,700 " " or Y = 1,700 XX (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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