Q.In a simple two-sector economy, the consumption function is C = 100 + 0.8Y and planned investment is I = 200 (all in ₹ crore). Find the equilibrium level of national income.

In the two-sector model, equilibrium income is where output equals planned expenditure, i.e. where $Y = C + I$; substitute the consumption function and solve for Y.

Given: consumption function $C = 100 + 0.8Y$ and planned investment $I = 200$ (₹ crore).

Step 1 — Write the equilibrium condition. In a two-sector economy, equilibrium income is where planned output equals planned expenditure:

Step 2 — Substitute the consumption function and investment.

Step 3 — Solve for Y.

$Y - 0.8Y = 300 \;\Rightarrow\; 0.2Y = 300 \;\Rightarrow\; Y = \frac{300}{0.2} = 1{,}500 \text{ crore}$ …

Multiplier method (cross-check): autonomous expenditure $A = 100 + 200 = 300$; the multiplier $k = 1/(1-MPC) = 1/(1-0.8) = 5$; equilibrium income $Y = k \times A = 5 \ti …

The commonest error is solving $0.2Y = 300$ incorrectly (e.g. dividing by 0.8 instead of 0.2, or forgetting to move $0.8Y$ to the left). Always collect the Y-terms o …