Question

Part C The following equations characterize an open economy in billions of dollars. C = 100 + .6 (Y – T) T = 40 I = 48 G = 64 X = 76 M = 20 + .15Y (f) If the national income were $340 billion. What is the value of C, M, and S? 3 marks

Answer 1

Ans) National income (Y) = 340 , T = 40

In equation (i)

C = 100 + .6 (Y-T)

C = 100 + .6 (340-40)

C = 100 + .6 (300)

C = 100+180

C = 280

In equation (II)

M = 20 + .15Y

M = 20 + .15(340)

M = 20+51

M = 71

The relationship of income, consumption and saving is:

In Equation (iii)

Y = C + S

340 = 280+S

340-280 = S

60 = S

AD (aggregate demand) = ? , G = 64, X = 76 , I = 48

In Equation (iv)

we put the value of M = 71 , which we can calculate in equation (ii)

AD = C+I+G+(X-M)

AD = 280+ 48 + 64 + (76-71)   

AD = 280+48+64+5

AD = 397