Question

If saving function for an economy is given as : S `= - 500 + 0.2Y` and investment expenditure is Rs. 100 crores, then determine: ("i) Level of income when saving will become zero,
(ii) Level of income when saving is equal to investment .

Answer 1

("i) Given Saving Function :S `=- 500 +0.2Y`
Putting value of S= 0 in the Saving Function , we get:
Y`=2,500`
Saving is equal to investment at equilibrium level of income. Putting value of S `= 100` in the Saving Function, we get:
`100 =- 500 + 0.2Y`
Y`= 3,000` Saving will be equal to investment at the equilibrium level of Rs 3,000 crores.