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