In Econland autonomous consumption equals 200, the marginal propensity to consume equals 0.9, net taxes are fixed at 100, investment is fixed at 200, government purchases are fixed at 300, and net exports are fixed at 50. Short-run equilibrium output in this economy equals:

Question

Quizplus · Accepted Answer

When the economy is in short-run equilibrium output and aggregate expenditures are equal. Using the relationships: Y = C + I + G + NX and C = EQ \x 	o(C)+ mpc(Y - T), we get Y = [200 + 0.9(Y - 100)] + 200 + 300 + 50 or Y = 200 + 0.9Y - 90 + 200 + 300 + 50 or Y = 660 + 0.9Y. Solving for Y, we get 0.1Y = 660 and Y = 6,60.

In Econland Autonomous Consumption Equals 200, the Marginal Propensity to Consume