What will be the saving and consumption expenditure at equilibrium level of national income when planned investment = Rs 200 crore and C = 100 + 0.6Y?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: savings = 200, consumption = 550
The equilibrium level of income can be determined with the help of:
Y = C + I ( at equilibrium level)
Y = (c̅ + bY) + I
Y = 100 + 0.6Y + 200
Y - 0.6Y = 300
0.4Y = 300
Y = 750
C = c̅ + bY
C = 100 + 0.6 (750)
C = 550
As, the income is consumer or saved we can say that, Y = C + S
750 = 550 + S
S = 200
Hence, consumption is 550 and savings is equal to 200.