Problema Solution

From the following equation, find the values of income Y and consumption spending C, when:

Y = C + I + G

Income

C = 18 + 0.8Y

Consumption expenditure

I = 12

Investment expenditure

G = 10

Government expenditure

Y =

Equilibrium level of income

Given the level of income Y, what is the level of consumption expenditure?

C =

Answer provided by our tutors

Y = C + I + G

Income

C = 18 + 0.8Y

Consumption expenditure

I = 12

Investment expenditure

G = 10

so Y = 18 + 0.8Y +12 +10

=> Y(1-0.8) = 40

=> 0.2Y = 40

=> Y = 200

SO C = 18 + (0.8*200) = 18 + 160 178