The consumption function in an imaginary economy is known to be C = 100 + 0.75Y. The level of equilibrium income in this economy is 800 crores. What will be the value of investment in this economy?

100 crores

The correct answer is Option (2) → 100 crores

In a simple Keynesian model, equilibrium occurs when aggregate expenditure (total spending) equals total output (income). Aggregate expenditure is the sum of consumption (C) and investment (I).

Step 1:

Given the consumption function: C = 100 + 0.75Y

Substitute the equilibrium income (Y = 800 crores):

C = 100 + 0.75 * 800

C = 100 + 600

C = 700 crores

Step 2:

At equilibrium: Aggregate Expenditure = Total Output (Income)

Aggregate Expenditure = C + I

800 crores = 700 crores + I

I = 800 crores - 700 crores

I = 100 crores