Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.Equilibrium national income is
A)560.00.
B)888.89.
C)1142.85.
D)1302.33.
E)1513.50.

Question

Quizplus · Accepted Answer

Equilibrium national income (Y) is determined where aggregate demand (AD) equals aggregate supply (AS), or in other words, where total spending equals total output. In this model, AD is given by the sum of consumption (C), investment (I), government spending (G), exports (X), minus imports (IM). The equation for equilibrium can be set up as follows:$$ Y = C + I + G + X - IM $$Substituting the given values into the equation:$$ Y = (60 + 0.43Y) + 150 + 260 + 90 - 0.06Y $$Simplifying and solving for Y:$$ Y = 560 + 0.37Y $$$$ 0.63Y = 560 $$$$ Y = \frac{560}{0.63} $$$$ Y = 888.89 $$Therefore, the equilibrium national income is 888.89.

Consider a Simple Macro Model with a Constant Price Level