Determination Of Income And Employment

Question

In an economy, S = –50 + 0.5Y is the saving function (where S = Saving and Y = National Income) and investment expenditure is र 7000. Calculate:
(i) Equilibrium level of national income,
(ii) Consumption expenditure at equilibrium level of national income.

Solution

(i) For equilibrium
I = S (Investment = Saving)
7000 = -50 + 0.5Y (Substituting values of I and S)
0.5 Y = 7000 + 50 = 7050
Y = 7050 x

10 over 5 space equals space 14100

(ii) For equilibrium
Y    = C + I
14100    = C + 7000
C    = 14100 – 7000 = 7100    (Consumption expenditure)