Question:
Assume that in a closed economy, the aggregate consumption function is C = 200 + 0.8Y, and the equilibrium level of national income is Rs. 4000 billion. What is the level of investment for this economy?
(1) Rs. 1600 billion
(2) Rs. 600 billion
(3) Rs. 400 billion
(4) Rs. 380 billion
(5) Rs. 300 billion
Correct Answer:
(2)
Answer Explanation:
In a closed economy with no government, $Y = C + I$. We know $Y = 4000$. First, calculate Consumption at equilibrium: $C = 200 + 0.8(4000) = 200 + 3200 = 3400$. Substitute this back into the equilibrium equation: $4000 = 3400 + I$. Solving for $I$, we get Investment = 600.
Topic: Macroeconomic Equilibrium Year: 2017
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