Let C = 70 + 0.75y and I = 40. Assume no government or foreign sectors. Investment needs to increase by ________ to increase equilibrium output by a total of $600.

Question

Quizplus · Accepted Answer

To find the increase in investment needed to increase equilibrium output by $600, we use the formula for equilibrium output: Y = C + I 
where Y is output, C is consumption, and I is investment.

We know that current consumption is C = 70 + 0.75y and current investment is I = 40.

Substituting these values into the equation, we get: 
Y = 70 + 0.75y + 40

Simplifying this equation, we get: 
Y = 110 + 0.75y

To increase equilibrium output by $600, we need to increase Y by 600.

So, we can set up the following equation: 
110 + 0.75y + x = 710 + 0.75y 
(where x is the increase in investment needed)

Simplifying this equation, we get: 
x = 150

Therefore, the increase in investment needed to increase equilibrium output by $600 is $150.