Question:
Suppose in a closed economy without government sector, aggregate saving function is S = -100 + 0.25 Y and investment (I) is Rs. 800 million. What is the equilibrium level of national income in this economy?
(1) Rs. 1 200 million.
(2) Rs. 2 800 million.
(3) Rs. 3 200 million.
(4) Rs. 3 600 million.
(5) Rs. 3 900 million.
Correct Answer:
(4)
Answer Explanation:
In a two-sector closed economy, equilibrium occurs where Injections equal Leakages: $I = S$. Therefore, $800 = -100 + 0.25Y$. Solving for Y: $900 = 0.25Y rightarrow Y = 900 / 0.25 = 3600$.
Topic: Macroeconomic Equilibrium Year: 2021
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