EconomicsMacro Economics: Determination of Income and Employment

In the two-sector model, the equilibrium level of income is given by:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Y = (C̄ + Ī)/(1 – c)

Equilibrium needs ex ante AD = ex ante AS: C̄ + Ī + cY = Y. Taking cY to the right side gives Y(1 − c) = C̄ + Ī, so Y = (C̄ + Ī) / (1 − c).

NCERT (2026-27): “4.2 Determination of Income in Two-sector Model If the final goods market is in equilibrium this can be written as
Y = C̄ + Ī + c.Y
where Y is the ex ante, or planned, ouput of final goods.”