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In an economy `C = 200 + 0.75Y` is the consumption function where C is consumption expenditure and Y is national income. Investment expenditure is 4,000. Calculate equilibrium level of income and consumption expenditure. |
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Answer» Consumption function, `C = 200 + 0.75 Y`, Investment, I = 4,000 Now `Y = C + I or Y = 200 + 0.75 Y + 4,000` `Y - 0.75Y = 4,200 or 0.25Y = 4,200 rArr = 4,200 xx (100)/(15)` Income, Y = 16,800 Consumption expenditure, `C = 200 + 0.75 Y` `= 200 + 0.75 (16,800)` `= 200 + 12,600` `= 12,800` |
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