CIMA BA1 · Chapter 1 · Question 10 of 10
In a closed economy, the consumption function is C = 40 + 0.75Y, investment is $60bn and government spending is $100bn. Ignoring taxation, what is equilibrium national income?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $800bn
Explanation
In equilibrium Y = C + I + G, so Y = 40 + 0.75Y + 60 + 100. Therefore Y - 0.75Y = 200, so 0.25Y = 200 and Y = 200 / 0.25 = $800bn.
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