In the classical model, assuming that the equilibrium GDP (Y) is 3,000. Consumption (C) is given by the equation C = 270 + 0.9 (Y-T). Taxes (T) equal 300, and government spending (G) is 250. What is equilibrium investment?
Question
In the classical model, assuming that the equilibrium GDP (Y) is 3,000. Consumption (C) is given by the equation C = 270 + 0.9 (Y-T). Taxes (T) equal 300, and government spending (G) is 250. What is equilibrium investment?
Solution
In the classical model, the equilibrium GDP (Y) is the sum of Consumption (C), Investment (I), and Government Spending (G). This can be represented by the equation:
Y = C + I + G
We are given that Y = 3000, C = 270 + 0.9(Y - T), T = 300, and G = 250.
First, let's calculate Consumption (C) using the given equation:
C = 270 + 0.9(Y - T) C = 270 + 0.9(3000 - 300) C = 270 + 0.9(2700) C = 270 + 2430 C = 2700
Now, we can substitute the values of Y, C, and G into the equilibrium equation to find Investment (I):
3000 = 2700 + I + 250 3000 = 2950 + I I = 3000 - 2950 I = 50
So, the equilibrium investment is 50.
Similar Questions
1. In a classical model of a closed economy, assume the equilibrium GDP (Y) is $7000, Consumption C is given by the equation.C = 270 + 0.8 (Y-T).Taxes (T) is equal to $800 and government spending G is $500.What is the equilibrium investment?
Consider the following economy:(1) C = 1000 + 0.3 (Y - T)(2) I = 700(3) G = 500(4) T = 100+0.1YWhat is the income of equilibrium? Note that now taxes change with income.
Consider the following economyC=1000+0.4(Y-T)I=500T=400G=300What is the investment of equilibrium?
Consider a closed economy:(1) C = 200 + 0.4 (Y-T)(2) I =300(3) G = 400(4) T = 300What is the income of equilibrium?
Consider the following economy:(1) C = 1000 + 0.3 (Y - T)(2) I = 700(3) G = 500(4) T = 400Given what you know from the previous question, i.e. the government is changing spending to reach balanced budget. Find the new income of equilibrium.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.