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This is an example of a two-point question
This is an example of a two-point question.
Consider this simplified model of an open economy with government
C = 50 + .75 YD
I = 70
G = 80
T = 40 + .2 Y
X = 60
IM = .15 Y
Calculate equilibrium income rounded to one decimal place
Your Answer: ________
Expert Solution
At equilibrium ,
Y = C + I + G + X - IM
Y = 50 + 0.75(Y-40+0.2Y) + 70 + 80 + 60 - 0.15Y
Y = 50 + 0.75Y - 30 + 0.15Y + 70 + 80 + 60 - 0.15Y
Y = 230 + 0.75Y + 0.15 Y - 0.15Y
Y = 230 + 0.90Y
Y - 0.90Y = 230
0.10Y = 230
Y = 230/0.10
Y = 2,300
So, the equilibrium level of Y is 2,300.
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