From the following information about an economy, calculate ( i) its equilibrium level of national income, and ( ii ) savings at equilibrium level of national income.
Consumption Function : C = 200 + 0.9 Y
Investment Expenditure : I = 3000
The answer given in the book is : Saving= Rs 3200, Equilibrium Income = Rs 32000
C = 200 + 0.9 Y
I = 3000
i) Equilibrium is struck when, Y= C + I
Y= 200 + 0.9 Y+ 3000
0.1Y = 3200
Therefore, equilibrium level of national income is 32,000.
ii) At Y = 32,000
C = 200 + 0.9 Y
C = 200 + 0.9 32,000
C= 29,000
S = Y C
S = 32,000 29,000
S = 3,000
Therefore, savings at equilibrium level of national income is 3,000.
I = 3000
i) Equilibrium is struck when, Y= C + I
Y= 200 + 0.9 Y+ 3000
0.1Y = 3200
Therefore, equilibrium level of national income is 32,000.
ii) At Y = 32,000
C = 200 + 0.9 Y
C = 200 + 0.9 32,000
C= 29,000
S = Y C
S = 32,000 29,000
S = 3,000
Therefore, savings at equilibrium level of national income is 3,000.