Question

Calculate the equilibrium level of income in the economy.

C = 500 + (0.9)Y

Investment expenditure = 3,000

Options

• Rs. 755,000

• Rs. 785,000

• Rs. 735,000

• Rs. 795,000

Answer 1

Rs. 735,000

Explanation:

Given C = 500 + (0.9)Y,

Investment expenditure, (I) = Rs.3,000;

At equilibrium level,

Y = C + I

⇒ Y = 500 + (0.9) Y+ 3,000

⇒ Y − (0.9)Y = 3,500 ⇒ (0.1)Y = 3,500Y = 3,5 000.1 = 735,000Y = 3,5000.1 = 735,000.

Therefore equilibrium level of Income = Rs. 735,000.