If in an economy :(a) Consumption function is given by C = 100 + 0.75

1.	If in an economy :(a) Consumption function is given by C = 100 + 0.75Y, and(b) Autonomous investment is Rs.150 crores.Estimate (i) Equilibrium level of income and (ii) Consumption and Savings at the equilibrium level of income.
Answer» C = 100 + 0.75Y I = 150 (i) At equilibrium level of income: Y = C + I Y = 100 + 0.75Y + 150 Y = 0.75Y = 250 Y = 250/0.25m= 1,000 (in Rs.crores) (ii) C = 100 + 0.75Y = 100 + 0.75(1000) = 100 + 750 = 850 (in Rs, crores) Y = C + S or S = Y - C = 1,000 - 850 = 150(in RS. crores)

If in an economy :(a) Consumption function is given by C = 100 + 0.75Y, and(b) Autonomous investment is Rs.150 crores.Estimate (i) Equilibrium level of income and (ii) Consumption and Savings at the equilibrium level of income.

Answer»

C = 100 + 0.75Y

I = 150

(i) At equilibrium level of income:

Y = C + I

Y = 100 + 0.75Y + 150

Y = 0.75Y = 250

Y = 250/0.25m= 1,000 (in Rs.crores)

(ii) C = 100 + 0.75Y = 100 + 0.75(1000) = 100 + 750

= 850 (in Rs, crores)

Y = C + S or S = Y - C = 1,000 - 850 = 150(in RS. crores)