Page 3 - lesson note--Income Determination and Multiplier43
P. 3
• In order to bring the panned inventory to its desired level the
producer will increase production resulting a rise in in
employment, output, national income and saving.
• It will continue till =
EX: - = 100 + 0.4 is the consumption function of a economy, where C is the
consumption and Y is the national income. Investment expenditure is 1100.
calculate
a. Equilibrium level of national income.
b. Consumption expenditure at equilibrium level of national
income.
Answer: - At the point of equilibrium =
=> + =
=> 100 + 0.4 + 1100 =
=> 0.4 + 1200 =
=> 1200 = − 0.4
=> 1200 = 0.6
1200
=> = = 2000.
0.6
OR
At the point of equilibrium S =
=> −100 + 0.6 = 1100
=> 0.6 = 1200
1200
=> 0.6 = =2000
0.6
b. At the point of equilibrium, the consumption expenditure is
= 100 + 0.4
= 100 + 0.4 × 2000
= 100 + 800 = 900.
AS
Y
=
<
AD
E
