C = 40 + 0.8Y and I = 10, then what will be the equilibrium level of income?
Answer & explanation
Correct answer: option 4
The equilibrium level of income is determined by setting aggregate demand equal to aggregate supply.
In the given scenario, the aggregate demand (C) is given by C=40+0.8Y and I =10.
The equilibrium level of income is found by setting C+I=Y
40+0.8Y+10=Y
50=0.2 Y
Y=50/0.2=250
So, the equilibrium level of income is 250