C=120 +0.5Y I = 20What is the equilibrium income?

The correct answer is Option (2) → 280

To find the equilibrium income, we use the equilibrium condition in a two-sector economy, where Aggregate Demand (AD) equals National Income (Y). 

The Aggregate Demand (AD) is given by: AD=C+I

In equilibrium, $Y=AD$, so: Y=C+I

Given:

$C$ is the Consumption function: $C=120+0.5Y$

I is Investment: I=20

Y=(120+0.5Y)+20 

$Y=140+0.5Y$

0.5Y=140

Y=280