The savings function of an economy is S = -200 + 0.25Y. The economy is in equilibrium when income is equal to ₹ 2,000.
Calculate:
  1. Investment expenditure at equilibrium level of income.
  2. Autonomous consumption.
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S = -200 + 0.25Y
  1. At equilibrium planned savings are equal to planned investment. Equilibrium level of income is 2,000. Substituting the value of Y in the savings function, we get;
S = -200 + 0.25 × 2,000

S = 300; I = 3300

Thus, investment expenditure at equilibrium level of income is 300.
  1. Consumption + Savings = Income,
Autonomous consumption means the level of consumption expenditure when income is zero.

When Y = 0, Savings = -200

So, autonomous consumption = 200
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