Assume:
C = 40 + 0.8(Y - T)
G = 10
I = 20
T = 0, where T are taxes.
a. Calculate Y at equilibrium
b. Calculate C, I, and G at equilibriu
(c) Now assume,
EX = 5 + 4EP /P
IM = 10 + 0.1 (Y - T) - 3EP /P
E = 3
P = 1.5
P = 2
Find equilibrium Y.
(a)
At Equilibrium,
Y = C + G + I
Y = 40 + 0.8(Y - T) + 10 + 20
Y = 70 + 0.8(Y - 0)
Y - 0.8Y = 70
0.2Y = 70
Y = 350
The equilibrium Y is 350.
(b)
C = 40 + 0.8(Y - T) = 40 + 0.8(350 - 0) = 40 + 280 = 320
The C at equilibrium is 320.
The G at equilibrium is 10.
The I at equilibrium is 20.
(c)
EX = 5 + 4EP/P = 5 + [(4*3*1.5)/2] = 5+ 9 = 14
IM = 10 + 0.1(Y - T) - 3EP/P = 10 + 0.1Y - [(3*3*1.5)/2] = 10 + 0.1Y - 6.75 = 3.25 + 0.1Y
At equilibrium,
Y = C + I + G + EX - IM
Y = 40 + 0.8(Y - T) + 20 + 10 + 14 - (3.25 + 0.1Y)
Y = 84 + 0.8Y - 3.25 - 0.1Y
Y = 80.75 + 0.7Y
Y - 0.7Y = 80.75
0.3Y = 80.75
Y = 80.75/0.3 = 269.1667
The equilibrium Y is 269.1667
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