Example 7.2
Y=C+I+G+X-Z
Consumption C = 25 + 0.8(Y - T)
Investment I = 75
Government expenditure G = 70
X=30
Z = 0.14Y
T = 0.2Y
-Refer to Example 7.2. If the economy's net tax function was NT = 0.1Y rather than T = 0.2Y, the equilibrium GDP would be about:

Question

Quizplus · Accepted Answer

The equilibrium GDP can be found by substituting the given equations into the national income identity Y = C + I + G + X - Z. With the new net tax function NT = 0.1Y, the consumption function becomes C = 25 + 0.8(Y - 0.1Y). Simplifying and solving for Y in the equation Y = (25 + 0.8Y - 0.08Y) + 75 + 70 + 30 - 0.14Y gives an equilibrium GDP close to $476.

Example 7.2 Y=C+I+G+X-Z