Consider the following economyC=1000+0.4(Y-T)I=500T=400G=300What is the income of equilibrium?
Question
Consider the following economyC=1000+0.4(Y-T)I=500T=400G=300What is the income of equilibrium?
Solution 1
To find the income of equilibrium, we need to use the aggregate demand and aggregate supply model. In this model, equilibrium occurs when aggregate demand (AD) equals aggregate supply (AS).
The aggregate demand (AD) is given by the equation: AD = C + I + G
Substituting the given values, we have: AD = (1000 + 0.4(Y - T)) + 500 + 300
Simplifying the equation, we get: AD = 1000 + 0.4Y - 0.4T + 500 + 300 AD = 1800 + 0.4Y - 0.4T
The aggregate supply (AS) is given by the equation: AS = Y
Setting AD equal to AS, we have: 1800 + 0.4Y - 0.4T = Y
Simplifying the equation, we get: 0.4Y - Y = 0.4T - 1800 -0.6Y = 0.4T - 1800 Y = (0.4T - 1800) / -0.6
Substituting the given value of T = 400, we can calculate the income of equilibrium: Y = (0.4(400) - 1800) / -0.6 Y = (160 - 1800) / -0.6 Y = -1640 / -0.6 Y = 2733.33
Therefore, the income of equilibrium is approximately 2733.33.
Solution 2
To find the income of equilibrium, we need to use the aggregate demand and aggregate supply model. In this model, equilibrium occurs when aggregate demand (AD) equals aggregate supply (AS).
The aggregate demand (AD) is given by the equation: AD = C + I + G
Substituting the given values, we have: AD = (1000 + 0.4(Y - T)) + 500 + 300
Simplifying the equation, we get: AD = 1000 + 0.4Y - 0.4T + 500 + 300 AD = 1800 + 0.4Y - 0.4T
The aggregate supply (AS) is given by the equation: AS = Y
Setting AD equal to AS, we have: 1800 + 0.4Y - 0.4T = Y
Simplifying the equation, we get: 0.4Y - Y = 0.4T - 1800 -0.6Y = 0.4T - 1800 Y = (0.4T - 1800) / -0.6
Substituting the given value of T = 400, we can calculate the income of equilibrium: Y = (0.4(400) - 1800) / -0.6 Y = (160 - 1800) / -0.6 Y = -1640 / -0.6 Y = 2733.33
Therefore, the income of equilibrium in this economy is approximately 2733.33.
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