Question

C = 50 + 0.5 Y is the Consumption Function where C is consumption expenditure and Y is National Income and Investment expenditure is 2000 is an economy. Calculate 

(i) Equilibrium level of National Income.

(ii) Consumption expenditure at equilibrium level of national income.

Answer 1

Given that

C = 50 + 0.5Y

I = 2000

(i) Equlibrium level of National Income

At equilibrium level, AD = AS or Y = C + I

By substituting the values of C and I in the formula, we get

Y = 50 + 0.5Y + 2000

 Y - 0.5Y = 50 + 2000

0.5Y = 2050

Y = 2050/0.5 = 4100
Thus, Equlibrium level of National Income is equal to 4100

(ii) Consumption expenditure at equlibrium level of National Income
C = 50 = 0.5Y
By substituing the value of national income at equlibrium level in the formula, we get

C = 50 + 0.5(4100)

C = 50 + 2050 = 2100
Thus, Consumption expenditure at equlibrium level of National Income is equal to 2100.