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SOLUTION :

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Given,

• Consumption Function, C = 100 + 0.7 Y

• Investment Expenditure, I = 1000

To calculate,

• Equilibrium level of income = ?

• Consumption expenditure at equilibrium level of income = ?

(i)

We know that,

• At equilibrium level, the aggregate supply equals to the aggregate demand, i.e., AS = AD.

So,

• ★ Y = C + I

⇒ Y = 100 + 0.7 Y + 1000

⇒ Y - 0.7 Y = 100 + 1000

⇒ 0.3 Y = 1100

∴ Y = 3667

Hence,

• The equilibrium level of income is 3667.

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(ii)

We have,

• Consumption function, C = 100 + 0.7 Y

So,

• ★ C = 100 + 0.7 Y

⇒ C = 100 + 0.7 × 3667

⇒ C = 100 + 2567

∴ C = 2667

Hence,

• The consumption expenditure at equilibrium level of income is 2667.