Given that :
C = 100+ 0.75 Y
Planned Investment = ₹1000 Crores
The equilibrium level of income is :
Answer & explanation
Correct answer: option 4
The correct answer is option (4) : ₹4400 Crores
To find the equilibrium level of income (Y), we need to set planned investment equal to aggregate expenditure (which includes consumption expenditure and investment) in a closed economy where there are no taxes or savings.
Given: Planned Investment (I) = ₹1000 Crores
Consumption function: C = 100 + 0.75Y
At equilibrium, aggregate expenditure (AE) equals income (Y):
AE = C + I
Substituting the values: AE = (100 + 0.75Y) + 1000
Since AE = Y (at equilibrium), Y = (100 + 0.75Y) + 1000
Now, solve for Y:
Y = 100 + 0.75Y + 1000
Y = 1100 + 0.75Y
0.25Y = 1100
Y = 1100 / 0.25
Y = 4400
Therefore, the equilibrium level of income (Y) is ₹4400 Crores.