At the equilibrium point when C=100+0.5 Y and I= 200, saving will be........................
At the equilibrium point when C=100+0.5 Y and I= 200, saving will be........................
Solution
Option 1 -> If saving were 600, it would exceed investment of 200, creating disequilibrium.
Option 2 -> This would mean S > I (400 > 200), which violates equilibrium condition.
Option 3 -> At equilibrium Y=C+I, so Y=100+0.5Y+200. Solving: Y=600. Since S=I at equilibrium and I=200, saving=200.
Option 4 -> If saving were 100, it would be less than investment, causing excess demand.
Hence, Option 3: 200 -> At equilibrium, Y = C + I gives us Y = 100 + 0.5Y + 200, which solves to Y = 600. Using the fundamental identity that Saving = Income - Consumption, we get S = 600 - (100 + 0.5×600) = 600 - 400 = 200. This also satisfies the equilibrium condition where S = I (200 = 200). -> correct
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