If in an economy:

a) Consumption function is given by C = 100 + 0.75 Y, an

b) Autonomous investment is 150 crores.

Estimate (i) Equilibrium level of income and (ii) Consumption and Savings at the

the equilibrium level of income.

OR

Explain how the economy achieves equilibrium level of income using Consumption +

Investment (C+I) approach. (3)

Given: C=100 +0.75Y

Investment=150 cr

i) At Equilibrium level of incomeY=C+I

Y=100+0.75Y+150

0.25Y=250

Y=rs 1000 Cr

ii) Consumption and Savings at the equilibrium level of income.

C=100+0.75Y

=100+0.75(1000)

=Rs 850 Cr

Y=Consumption+ savings

Savings=1000-850=rs 150 Cr

OR

C+I is the aggregate demand where C=consumption and I is an investment.

The equilibrium level of demand is when aggregate demand(AD) is equal to aggregate supply (AS).

That means the equilibrium level of income is achieved when an economy or business has an equal amount of production and market demand.

The formula to calculate this is Y=C+I+G

where Y is aggregate income, C is consumption, I is investment expenditure, and G is government expenditure.

Example: when G increases i.e government spending increases and rest all the other expenditures are constant then the aggregate income also increases to maintain the level of equilibrium.