Question
In an economy S = - 50 + 0.5Y is the saving function (where S = saving and Y = national income) and investment expenditure is 7,000. Calculate
(i) Equilibrium level of national income.
(ii) Consumption expenditure at equilibrium level of national income.
(i) Equilibrium level of national income.
(ii) Consumption expenditure at equilibrium level of national income.
Answer: Option D
:
D
(i) Given, S = - 50 + 0.5Y
and I = 7,000
At the equilibrium level,
⇒ S = I
-50 + 0.5Y = 7,000
0.5Y = 7,000 + 50
0.5Y = 7,050
Y=7,0500.5
⇒ Y = 14,100
(ii) At Y = 14,100
Saving, S = - 50 + 0.5(14,100)
= - 50 + 7,050
∴ S = 7,000
Consumption expenditure, C = Y - S
⇒ =14,100−7,000
=7,100
Alternative Method
At equilibrium level,
Saving = Investment
Saving = 7,000
Consumption expenditure, C = Y - S
= 14,100 - 7,000
= 7,100.
(i) Equilibrium level of national income = 14,100.
(ii) Consumption expenditure at equilibrium level of national income = 7,100.
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:
D
(i) Given, S = - 50 + 0.5Y
and I = 7,000
At the equilibrium level,
⇒ S = I
-50 + 0.5Y = 7,000
0.5Y = 7,000 + 50
0.5Y = 7,050
Y=7,0500.5
⇒ Y = 14,100
(ii) At Y = 14,100
Saving, S = - 50 + 0.5(14,100)
= - 50 + 7,050
∴ S = 7,000
Consumption expenditure, C = Y - S
⇒ =14,100−7,000
=7,100
Alternative Method
At equilibrium level,
Saving = Investment
Saving = 7,000
Consumption expenditure, C = Y - S
= 14,100 - 7,000
= 7,100.
(i) Equilibrium level of national income = 14,100.
(ii) Consumption expenditure at equilibrium level of national income = 7,100.
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