Table 11-1 Refer to Table 11-1. What is the equilibrium level of income in this model?
A) 5,000
B) 4,500
C) 3,750
D) 3,500
E) 3,250

Question

Table 11-1  Refer to Table 11-1. What is the equilibrium level of income in this model?
A) 5,000 
B) 4,500 
C) 3,750 
D) 3,500 
E) 3,250

Quizplus · Accepted Answer

The equilibrium level of income occurs when aggregate expenditures (AE) equals GDP. In this model, AE = 1,250 + 0.6Y, where Y is income. Setting AE equal to Y gives us:
Y = 1,250 + 0.6Y
0.4Y = 1,250
Y = 3,750
Therefore, the equilibrium level of income is $3,750.