In a two-sector model. Rs 60 crore are saved when national income is Rs. 600 crore and Rs 80 crore are saved when national income is Rs. 680 crore . It planned investment is Rs. 80 crore, what is the equilibrium level of national income?

Solution :

Equilibrium level of national income is obtained when planned saving is equal to planned investment . This happens in the present case at the income level of Rs. 680 crore (as planned saving and planned investment are both equal to Rs. 80 crore at this income level). Therefore, equilibrium level of national income is Rs. 680 crore.

                                           AE = C + I₀
=>                                         Y = C + I₀
=>                                         Y = 200 + 0.75Y + 500
=>                              Y- 0.75Y = 700
=>                                  0.25Y = 700

=>                                         Y =  700  = Rs 2800 crore
                                                    0.25                                          

Thus, the equilibrium real GDP of the economy is Rs 2800 crore.