Answer to Question #166802 in Macroeconomics for Shiv shankar

Question

In an economy C= 200 + 0.5 Y is the consumption function where C is the 

consumption expenditure and Y is the national income. Investment 

expenditure is ₹ 400 crores.

Is the economy in equilibrium at an income level ₹1500 crores? Justify your 

answer.

Answer 1

$No, the \ economy\ is\ not \ at\ a\ state \ of \ equilibrium\ at\ an\ income\ level \\of \ 1500\ crores\ given\ consumption\ function,$

$C = 200 + 0.5Y$

$Investment\ expenditure(I)=400\ crores$

$At\ the\ equilibrium\ level :$

$Y=C+I$

$Substituting\ the\ values\ from \ the \ question:$

$Y=({200+0.5Y})+400\\ Y-0.5Y=600\\ 0.5Y=\frac{600}{0.5}=1200\\$

$The \ equilibrium \ level \ of\ income\ is\ 1200\ crores.\\ So\ the\ economy\ will\ be\ equilibrium\ only \ if\ Y=1200.\\ The \ given \ income \ is \ 1500\ crores\ which\ is\ greater\ than \ the\ equilibrium\ level\\ of\ income\, therefore\ the \ economy\ is\ not\ at\ equilibrium.$