Question

In an economy, `S = -100 + 0.6Y` is the saving function, where S is saving and Y is National Income. If investment expenditure is 1100. Calculate.
(i) Equilibrium level of National Income
(ii) Consumption expenditure of equilibrium level of National Income

Answer 1

Saving function, `S = -100 + 0.6Y`
Investment, `I = 1,100 Y`= National income
(i) We know that `S = I` Given `S = - 100 + 0.6Y`
`rArr I = - 100 + 0.6Y rArr 1,100 = - 100 + 0.6Y`
`uarr rArr 1,200 = 0,6Y | Y = 1,200 xx (10)/(6) = 2,000`
`:.` Equilibrium level of National Income, `Y = 2,000`
(ii) `Y = C + I`
`2,000 = C + I rArr C = 2,000 - 1,100 = 900`
`:.` Consumption expenditure at equilibrium level = 900