Given consumption function C= 100+ 0.75Y (where C= consumption expenditure and Y= national income) and investment expenditure Rs. 1,000, calculate: ("i) Equilibrium level of national income, (ii) Consumption expenditure equilibruim level of national income.

Answer

("i) Equilibrium level of national income = Rs.4,400; (ii) Consumption expenditure at equilibrium level of national income =Rs.3,400

Explanation

("i) Equilibrium level of national Income (Y)
At Equilibrium, Y=C + l [:'AD=AS =Y and AD =C+l]
Or, Y=100 + 0.75Y + 1,000 [:'C=100 + 0.75Y]
0.25Y = 1,100
Y= Rs. 4,400
(ii) Consumption expenditure at equilibrium level of national income.
Putting value of National Income of 4,400 in consumption function, we get:
C=100+0.75xx4,400
C`= Rs. 3,400`