Page 3 - lesson note-Income Determination and Multiplier45

4. In an economy, consumption function is given by = 100 + 0.75,

and autonomous investment is Rs.150crore. estimate
a. Equilibrium level of national income.
b. Consumption and saving at equilibrium level of national income.

Answer: -

a. Consumption function is given as = 100 + 0.75
Savings function will be = − + (1 − )
0
 = −100 + (1 − 0.75)
 = −100 + 0.25

At the point of equilibrium =

 −100 + 0.25 = 150
 0.25 = 250
250
 = = 1000
0.25

The equilibrium level of national income is 1000crore.

b. Consumption at equilibrium level of national income is
= 100 + 0.75 × 1000 = 100 + 750 = 850

Savings at equilibrium level of national income is

= −100 + 0.25 × 1000 = 150

5. Find the investment expenditure from the following: -

a. National income Rs.800
b. Autonomous consumptionRs.200
c. Marginal propensity to consume0.7

Answer: -

At the equilibrium level of national income =

 C + I = Y
 + . + =
0
 200 + 0.7 + = 800

 200 + 0.7 × 800 = 800
 200 + 560 + = 800
 760 + = 800
 = 800 − 760

 = 40