### Example 24.

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Given consumption function C= 100 + 0.75Y (where C=consumption expenditure and Y = national income)
**

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and investment expenditure ₹ 1,000, calculate: C = consumption expenditure level
**

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national income;(ii)Consumption expenditure at equilibrium level of national income .
**

(i)

It is given in question that

Consumption Function is

C=100+0.75Y

Suppose, Income =Y

Consumption =100+0.75y

Savings=Income-Consumption

Savings=y-(100+0.75y)

Savings=0.25y-100

We know that

At equilibrium level of Income

Savings=Investment

0.25y-100=1000

0.25y =1000+100

0.25y =1100

y =1100/0.25

y =1100*100/25

y =1100*4

y =4400

(ii)

Now, lets calculate Consumption Expenditure C

C=100+0.75Y

C=100+0.75*4400

C=100+3300

C=3400

### Example 25.

**
In an economy, the consumption function is C = 500 + 0.75Y, where C is
**

**
consumption expenditure and Y is income. Calculate the equilibrium level of income and
**

**
consumption expenditure, when investment expenditure is 5,000.
**

It is given in question that

Consumption Function is

C = 200+0.5Y

Suppose, Income =Y

Consumption = 200 + 0.5Y

Savings = Income - Consumption

Savings= Y - (200 + 0.5Y)

Savings = 0.5Y - 200

At Y = 1500

Savings = 0.5(1500) - 200

Savings = 750 - 200

Savings = 550

Given,

Investment = 400

Now, at equilibrium level

Savings = Investment

but Savings = 550 is not equal to Investment = 400

So, the economy is not in equilibrium at income level of Rs1500

### Example 29.

**
In an economy, the investment expenditure is ₹ 70 crores and consumption function
**

**
is C=60 + 0.80Y. (i) Determine the equilibrium level of income; (ii) Find the equilibrium income
**

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"when planned investment expenditure is increased by ₹ 10 crores; (iii) Value of multiplier due" to increase in investment expenditure.
**

(i)

It is given in question that

Consumption Function is

C=60+0.8Y

Suppose, Income =Y

Consumption =60+0.8Y

Savings=Income-Consumption

Savings=y-(60+0.8y)

Savings=0.2y-60

We know that

At equilibrium level of Income

Savings=Investment

0.2y-60=70

0.2y =70+60

0.2y =130

y=130/0.2

y=130*10/2

y=1300/2

y=650

(ii)

Current Investment =70 crores

Investment Increase by 10 Crores

Total Investment =70+10=80 Crores

Now

At equilibrium level of Income also

Y = C + I

Y = 60 + 0.8Y + 80

0.2Y = 140

Y = 700

(iii)

Now

Investment Increased from 70 to 80

Increase in Investment =10 Crore

Income increased from 650 to 700 Crores

Increase In Income =50 Crores

k=Investment Multiplier=Change in Income/Change in Investment

k=50/10

k=50/10

K = 5

### Example 34

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calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous
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consumption is RS 500 crores, ex-ante investment are RS 4,000 crores and equilibrium
**

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level of Income of the economy is RS 18,00 crores.
**

We know that

At equilibrium level of Income

Savings =Investment

Savings =4000

Now,

Income=Savings + Consumption

18000=4000+Consumption

14000=Consumption

Consumption=14000

Now, we know that Consumption Function is represented by

C =Ĉ +b(Y)

where

C= Total Consumption =14000

Ĉ = Autonomous Consumption =500

Y=Income =18000

b=MPC(This we have to calculate)

Putting values

C =Ĉ +b (Y)

14000=500+b*18000

13500=b*18000

13500/18000=b

0.75=b

b=0.75

### NCERT Questions

**
No questions in this part
**

### Other Books

#### Question 1

**
In an economy, the consumption function is C=600 + 0.9Y, where C is consumption expenditure and Y is income.
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Calculate equilibrium level of income and consumption expenditure, when investment expenditure is 500.
**

Given,

C = 600 + 0.9Y

I = 500

At equilibrium level of income

S = I = 500

S = -600 + 0.1Y

500 = -600 + 0.1Y

1100/0.1 = Y

Y = 11000

C = 600 + 0.9Y

C = 600 + 0.9(11000)

C = 600 + 9900

C = 10500

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