An open economy is in equilibrium when Y = C + I + G + X - M where Y = national income; C = consumption; I = investment; G = government expenditure; X = exports; and M =imports. Determine the equilibrium level of income given that C = 0.8 Y+ 80; I = 70; G =130; X =100 , and M = 0.2Y + 50.
Added by Nicole R.
Step 1
Here, \(Y\) represents the national income, \(C\) is consumption, \(I\) is investment, \(G\) is government expenditure, \(X\) is exports, and \(M\) is imports. Show more…
Show all steps
Your feedback will help us improve your experience
Haricharan Gupta and 89 other Macroeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Assume that the consumption schedule for a private open economy is such that consumption $C=50+0.8 Y$. Assume further that planned investment $I_{g}$ and net exports $X_{n}$ are independent of the level of real GDP and constant at $I_{g}=30$ and $X_{n}=10 .$ Recall also that, in equilibrium, the real output produced $(Y)$ is equal to aggregate expenditures: $Y=C+I_{g}+X_{n} .$ a. Calculate the equilibrium level of income or real GDP for this economy. b. What happens to equilibrium $Y$ if $I_{g}$ changes to 10 ? What does this outcome reveal about the size of the multiplier?
Md.Daniyal A.
In a simple model of the economy (by John Maynard Keynes), equilibrium between national output and national expenditures is given by the equilibrium equation $$ Y=C+I+G+(X-M) $$ where $Y$ is the national income, C is consumption (which depends on national income), I is the amount of investment, $G$ is government spending, $X$ is exports, and $M$ is imports (which also depend on national income). Solve the equilibrium equation for $Y$ under the given conditions. $$\begin{aligned} &C=60+.85 Y, M=35+.2 Y, I=95, G=145, \text { and }\\ &X=50 \end{aligned}$$
Basics
Solving Equations Algebraically
Recommended Textbooks
Principles of Economics
Macroeconomics
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD