Question

Consumption =115+0.6y
Investment = 550

4.3 Calculate the equilibrium level of income

Answer 1

For equilibrium level of income to occur, aggregate supply (AS) = aggregate demand (AD).

let $Y$ be income in the economy.

$Y$ = $C$ + $I$ where $C$ is the consumption, and $I$ is the investment

$Y = 115 + 0.6Y + 550$

$Y - 0.6Y = 115 + 550$

$0.4Y = 665$

$Y = \frac{665}{0.4} = 1662.5$