Question
In an economy C = 100 + 0.7Y, I = 500 (where C – consumption, Y = income and I = investment). Calculate (i) Equilibrium level of income, (ii) Consumption expenditure at equilibrium level of income.
Solution
Detailed solution not provided.
Tips: -
(i) For equilibrium level of income Y = C + I (i.e., AS = AD)
Y = 100 + 0.7 Y + 500
Y – 0.7 Y = 600
0.3 Y = 600 or 3/10 Y = 600
Y = 600 x 10/3 = 2000
Equilibrium level of income = 2000
(ii) Consumption (C) = 100 + 0.7 Y
= 100 + 7/10 of 2000
= 100 + 1400 = 1500
