In a two-section ecnomy the income and consuption fuction are as follows: ltbrlt `Y = C+1 , C = 40 + 0.75 Y`
If the investments are ₹ 60 crose, calculate , (a) Equilbrium level of iccome , (b) level of consuption at equilbrum, (c) Saving at equilibrium .

Explanation

At equilibrium level
AD= AS = National icome (Y)
So, AD = Y + C+I
Given C= 40 + + 0.75 Y
` Y = (40 + 0.75 Y) + 60`
or ` Y - 0.75 Y = 100 or 0.25 Y = 100 or Y =(100)/(0.25)= 400`
Equilibrium level of income = ₹ 400 crore.
(b) Putting the value of Y = 400 in the consumption function `(= 40 + 0.75Y)` we get
`C = 40 + (0.75) (400) = ₹ 340` crore
Level of consumption at equilibrum = ₹ 340 crore.
(c) Saving (S) = Inome (Y) - Consumption (C)
(S) = 400-340 = 60
Level of saving at equilibrium = ₹60 crore.