Regardless Of The Level Of Income Sample Assignment

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Regardless Of The Level Of Income Sample Assignment

Suppose, consumption function is given as:
                                        C = -600 + 0.75Y

Investment is assumed to be 900, regardless of the level of income. Government purchases are 1,200. Determine the equilibrium level of income.

Solution:


 Equilibrium level of income is defined as:
                                        Y = C + I +G
Putting the values, we get
                                        Y = -600 +0.75Y + 900 + 1,200
                                        Y = 1,500 + 0.75Y
To solve this equation for Y, first subtract 0.75Y from both sided to get
                                 0.25 = 1,500
Then divide both side by 0.25 to obtain the answer
                                   Y = 6,000

                                 

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