CA Foundation · Business Economics · Determination of National Income
In a two-sector economy, the consumption function is C = 150 + 0.8Y and investment is ₹250 crore. What is the equilibrium level of saving?
Equilibrium saving is ₹250 crore. Income is (150+250)/0.2 = ₹2,000 crore, consumption is ₹1,750 crore, so saving is ₹250 crore. In a two-sector model, equilibrium requires planned saving to equal planned investment.
- A₹150 crore
- B₹200 crore
- C₹250 croreCorrect
- D₹2,000 crore
Explanation
Equilibrium Y = (150 + 250)/(1 - 0.8) = 2,000. Consumption = 150 + 1,600 = 1,750, so saving = 2,000 - 1,750 = 250, equal to investment as required at equilibrium. ₹150 crore is autonomous consumption, not saving.
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