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C = 100 + 0.4Y is the consumption function of an economy, where C is Consumption Expenditure and Y is National Income. Investment Expenditure is 1,100. Calculate

(i) Equilibrium level of National Income.

(ii) Consumption Expenditure at equilibrium level of National Income.

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1 Answers

Y = C + I

∴ Y = 100 + 0.4Y + 1,100

or Y - 0.4Y = 1,200

or 0.6Y = 1,200

or Y = 1,200/0.6

= 2,000

∴ Y = 2,000

Now C = 100 + 0.4Y(given)

∴ C = 100 + 0.4(2,000)

or C = 100 + 800

C = 900

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