In a two- sector economy , the income function is: Y `=C+l` and consumption function is given as: C `=40+0.75Y.` If investments are Rs. 60 crores, calculate: (a) Equilibrium level of income , (b) Level of consumption at equilibrium, (c ) Saving at equilibrium.

Explanation

(a) At equilibrium level, AD= AS = National Invome (Y)
So, AD = Y = C+l`
Given: C`=40+0.75Y.` Putting this value of C in the equation Y ` =C+l,` we get:
Y `=(40+0.75Y)+60` `(:'l=Rs.60 crores)`
Y = Equilibrium level of income = Rs. 400 crores
(b) Putting the value of Y = 40 in the consumption `(C=40_0.75Y),` we get
C `= 40+0.75xx400=340,` Level of Consumption at Equilibrim = Rs. 340 crores
(c ) Saving (S) = Income (Y) - Consumption (C )
Saving `=400-340=Rs.60` crores
Level of Saving at Equilibrium = Rs. 60 crores