Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 120 + 0.86Y,I = 300,G = 520,T = 0,X = 180,IM = 0.12Y.Equilibrium national income is
A)2037.48.
B)3615.24.
C)4000.00.
D)4307.70.
E)8000.00.

Question

Quizplus · Accepted Answer

In this demand-determined model, equilibrium national income is determined when aggregate demand (Y) equals output (Y).

The equation for aggregate demand is:

Y = C + I + G + X - IM - T

Substituting in the given values:

Y = (120 + 0.86Y) + 300 + 520 + 180 - 0.12Y - 0

Simplifying:

Y = 1120 + 0.74Y

0.26Y = 1120

Y = 4307.70

Therefore, the equilibrium national income is $4307.70, which is option D.

Consider a Simple Macro Model with a Constant Price Level