In Econland,the components of planned aggregate expenditure are given by:
C = 500 + 0.75(Y - T)- 500r
I = 300 - 500r
G = 400
NX = 30
If net taxes equal 40 and the central bank sets the interest rate at 0.05 (5%),what is short-run equilibrium output?
A) 4,520.
B) 4,560.
C) 4,600.
D) 4,640.
E) 4,680.

Question

Quizplus · Accepted Answer

To find the short-run equilibrium output, calculate planned aggregate expenditure (AE) and set it equal to output (Y). AE = C + I + G + NX. Substitute the given values: C = 500 + 0.75(Y - 40) - 500(0.05), I = 300 - 500(0.05), G = 400, NX = 30. Solve for Y: Y = 500 + 0.75(Y - 40) - 25 + 300 - 25 + 400 + 30. Simplifying gives Y = 4,600.

In Econland,the Components of Planned Aggregate Expenditure Are Given By