Calculate the Equilibrium level of Income for an imaginary economy, if it is given that : (a) Consumption function, C = 500 + 0.80 Y where C = Consumption, Y = Income (b) Autonomous Investments (I_0) = Rs. 1,000 crore

Question

Accepted Answer

Given: Consumption Function: C = 500 + 0.80Y, Autonomous Investment (I₀) = ₹1,000 crores
MPC (b) = 0.80
At equilibrium, Y = C + I
Y = 500 + 0.80Y + 1000
Y = 1500 + 0.80Y
Y - 0.80Y = 1500
0.20Y = 1500
Y = 1500 / 0.20
Y = ₹7,500 crores
The equilibrium level of income is ₹7,500 crores.