Arrange the following steps of determination of equilibrium income in chronological order if $C = 40+ 0.8Y, I = 10$.
(A) $Y = C + I$
(B) $0.2Y = 50$
(C) $Y = 50+0.8Y$
(D) $Y = 250$
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C), (B), (D)
(A) $Y = C + I$. This is the equilibrium condition, where income (Y) equals consumption (C) plus investment (I).
(C) $Y = 50+0.8Y$. Now substitute the values of C = 40 + 0.8Y and I = 10 into the equation:
Y = (40 + 0.8Y) + 10
⇒ Y = 50 + 0.8Y
(B) $0.2Y = 50$ : Bring 0.8Y to the left side:
Y − 0.8Y = 50
⇒ 0.2Y = 50
(D) $Y = 250$ : Solving the above:
Y = 50 / 0.2 = 250