In a hypothetical economy, the consumption function is given as $C = 100 + 0.75Y$. The autonomous investment in the economy is 200 crores. The equilibrium level of income would be?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 1200 crores
Consumption function: C=100+0.75Y
Autonomous investment: I=200
At equilibrium: Y=C+I
Y = 100 + 0.75 Y + 200
Y − 0.75Y = 300
Y =300/0.25 = 1200
The equilibrium level of income is 1200 crores, where aggregate demand (C + I) equals aggregate output (Y).