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In an economy C = 200 + 0.5Y is the consumption function where C is the consumption expenditure and Y is the national income. Investment expenditure is 400 crores. Is the economy in equilibrium at an income level 1500 crores? Justify your answer. |
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Answer» No, the Economy is not in a state of equilibrium at Rs. 1500 crores Given Consumption function, C = 200 + 0.5Y Investment expenditure (I) = 400 crore At the equilibrium level Y= C + I Substituting the values from the question: Y= {200 + 0.5Y} + 400 Y - 0.5Y = 600 0.5Y = 600 Y = 600/0.5 = 1200 The equilibrium level of income is Rs.1200 crores. The given income Rs.1500 crore is greater than equilibrium level of income. Therefore, the economy is not in equilibrium. |
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