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In an economy the consumption function is C = 500 + 0.8Y where C is consumption expenditure and Y is income. Calculate the equilibrium level of income and consumption expenditure when investment expd. is 500. |
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Answer» (i) Given C = 500 + 0.8y I = 500 We know, Y = C + I Y = 500 + 0.8y + 500 Y – 0.08y = 1000 y = 1000/0.2 = 5000 (ii) C = Y – I = 5000 – 500 = Rs. 4500 Crores |
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