find new Equilibrium level of income

Discipline: Business

Academic Level: Undergrad. (yrs 3-4)

Paper Format: APA

Pages: 1 Words: 275

Buy For $1.00 Order Custom Paper

Buy For $1.00

Question

C= 120 + 0.7 yd I= 90 G=55 Im= 30 Ex= 20 T= 10+ 0.20 اجب عن الأسئلة اعتمادا على المعادلة السابقة 1- Equilibrium level of income 2- Consumption 3- Saving 4- Find multiplier 5- If the government spending increase 40 find new Equilibrium level of income

Expert Answer

(1)

In equilibrium, Y = C + I + G + Ex - Im

Y = 120 + 0.7 x (Y - 10 - 0.2Y) + 90 + 55 + 20 - 30 [as Yd = Y - T = Y - (10 + 0.2Y)]

Y = 255 + 0.7 x (0.8Y - 10)

Y = 255 + 0.56Y - 7

0.44Y = 248

Y = 563.64

(2)

C = 120 + 0.7 x [563.64 - 10 - (0.2 x 563.64)]

C = 120 + 0.7 x (553.64 - 112.73)

C = 120 + 0.7 x 440.91

C = 120 + 308.64

C = 428.64

(3)

S = Y - C

S = 563.64 - 428.64

S = 135

(4)

Multiplier = 1 / [1 - MPC x (1 - t)]

= 1 / [1 - 0.7 x (1 - 0.2)]

= 1 / [1 - (0.7 x 0.8)]

= 1 / (1 - 0.56)

= 1 / 0.44

= 2.27

(5)

When G increases by 40, Y increases by (40 x 2.27) = 90.8

New Y = 563.64 + 90.8 = 654.44