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In an economy C= 200 + 0.5 Y is the consumption function where C is the consumption expenditure and Y is the national income. Investment expenditure is Rs 400 crores.Is the economy in equilibrium at an income level Rs 1500 crores? Justify your answer |
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Answer» Given , Consumption function(C)=200+0.5Y, Investment(I)=400, Level of income (Y)=1500 At Equilibrium level → AD = AS Y = C+I thus, Y = (200 + 0.5Y) + 400 Y – 0.5 Y = 600 Y = 600/0.5 = Rs 1200 crores. The equilibrium level of income = Rs 1200 crores. The given income (Rs 1500 crores) is greater than equilibrium level of income (Rs 1200 crores). Therefore, the economy is not in equilibrium. |
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