In an economy , the investment expenditure is Rs. 70 crores and consumption functin is C= 60 + 0.80 Y . ("i) Determine the equilibrium level of income , (ii) Find the equilibrium income when planned investment expenditure is creased by Rs. 10 crores , (iii) Value of multiplier due to increase in investment expenditure.

Answer

("i) Rs. 650 crores; (ii) Rs. 700 crores; (iii) 5

Explanation

("i) Equilibrium level of Income (Y)
At Equilibrium, Y =C+I ` [:' AD = AS = Y and AD = C +l]`
Or , Y= 60 + 0.80Y+ 70 [:' C= 60+ 0.80Y]
0.20Y 130
650 crores (ii) Equilibrium income when planned investment expenditure is increased by Rs. 10 crores, i.e.
l `=Rs. 80` crores.
At Equilibrium, Y= C+l
Or Y `=60+ 0.80 Y +80`
0.20 Y = 140
Y= Rs. 700 crores
(iii) Value of Multiplier (k)
As a result of Rs. 10 crores increase in investment , income increases by Rs. 50 crores.
k`=("Change in Income"(DeltaY))/("Change in Investment"(Deltal))`
k`=(50)/(10)=5`