Question

Calculate equilibrium level of income for a hypothetical economy, for which it is given that:

1. Autonomous Investments = ₹ 500 crores, and
2. Consumption function, C = 100 + 0.80Y

Answer 1

Given Consumption function is,

C = 100 + 0.8Y

Autonomous investments = 500 crores

We know, at equilibrium level

Y = C + I

Y = 100 + 0.8Y + 500

Y − 0.8Y = 600

0.2Y = 600

Y = ₹ 3,000 crores