Assume the economy is closed and there is no government. The aggregate demand componentsare described below:C = 100 + 0.6YI = 200What is the investment of equilibrium?
Question
Assume the economy is closed and there is no government. The aggregate demand componentsare described below:C = 100 + 0.6YI = 200What is the investment of equilibrium?
Solution 1
In a closed economy with no government, the equilibrium is where aggregate demand equals aggregate supply. Aggregate demand is the sum of consumption (C) and investment (I).
Given the consumption function C = 100 + 0.6Y and investment I = 200, aggregate demand (AD) is:
AD = C + I AD = (100 + 0.6Y) + 200 AD = 300 + 0.6Y
In equilibrium, aggregate demand equals aggregate supply. In a simple economy, aggregate supply is just the total output, which is income (Y). So, we set AD = Y:
300 + 0.6Y = Y
Solving this equation for Y gives the equilibrium level of income.
0.4Y = 300 Y = 300 / 0.4 Y = 750
So, the equilibrium level of income (Y) in this economy is 750.
The investment of equilibrium in this context is the level of investment (I) when the economy is in equilibrium. As given in the problem, investment (I) is 200. This is a fixed value and does not change with the level of income or output. So, the investment of equilibrium is 200.
Solution 2
In a closed economy with no government, the equilibrium is where aggregate demand equals aggregate supply. Aggregate demand is the sum of consumption (C) and investment (I).
Given the consumption function C = 100 + 0.6Y and investment I = 200, aggregate demand (AD) is:
AD = C + I AD = (100 + 0.6Y) + 200 AD = 300 + 0.6Y
In equilibrium, aggregate demand equals aggregate supply. In a simple economy, aggregate supply is just the total output, which is income (Y). So, we set AD = Y:
300 + 0.6Y = Y
Solving this equation for Y gives us the equilibrium level of income.
0.4Y = 300 Y = 300 / 0.4 Y = 750
So, the equilibrium level of income (Y) in this economy is 750.
The investment of equilibrium in this context is the level of investment (I) when the economy is in equilibrium. As per the given information, investment (I) is 200. This is a fixed value and does not change with the level of income or output.
So, the investment at equilibrium is 200.
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