The Peruvian economy can be characterized by Equation 9.4.
EQUATION 9.4:
C = 400 + 0.6Yd
Taxes = 600
Equilibrium Output = $4,000
-Refer to Equation 9.4. At equilibrium, the sum of investment and government purchases in Peru is

Question

Quizplus · Accepted Answer

At equilibrium, Y = C + I + G, where Y is output, C is consumption expenditure, I is investment expenditure, and G is government expenditure. In this case, Y is given as $4,000 and C is given by Equation 9.4 as C = 400 + 0.6Yd, where Yd is disposable income. Given taxes = $600, Yd = Y - taxes = $3,400. Therefore, C = 400 + 0.6(3,400) = $2,440. Thus, at equilibrium, Y = C + I + G = $4,000 = $2,440 + I + $600, from which I = $960. Therefore, the sum of investment and government purchases is $960 + $600 = $1,560.

The Peruvian Economy Can Be Characterized by Equation 9