Suppose that planned consumption equals 30 + 0.8Y and planned investment is Rs. 50 crore. Find (i) the equilibrium level of income,  (ii) the level of consumption at equilibrium, and (iii) the level of saving at equilibrium.

Solution:

The equilibrium condition is

                                  Y = C+I
Or                              Y = 30 + 0.8Y +50
Or                          0.2Y= 80 which gives Y = Rs. 400 crore
Level of consumption at equilibrium is
                                 C = 30 + 0.8 X 400 = Rs. 350 crore
The saving equation is S = Y – C
Or                              S = Y – (30 + 0.8 Y)
                                     =  0.2Y – 30
When Y = Rs. 400 crore, S = 0.2 X 400 – 30 = Rs. 50 crore