Question

In an economy with no exports and​ imports, autonomous consumption is ​$2 ​trillion, the marginal propensity to consume is 0.6​, investment is ​$5 ​trillion, and government expenditure on goods and services is ​$6 trillion. Taxes are ​$4 trillion and do not vary with real GDP. If real GDP is ​$33.1, calculate disposable​ income, consumption​ expenditure, and aggregate planned expenditure. What is equilibrium​ expenditure?

The author got the equilibrium expenditure is ​$26.5 trillion but the expert got 25. Please break down step by step.

Thanks

Answer 1

Disposable income, Yd = Y - T = 33.1 - 4
So, Yd = $29.1 trillion

Consumption expenditure, C = 2 + 0.6Yd = 2 + 0.6(29.1) = 2 + 17.56
So, C = $19.56 trillion

Aggregate planned expenditure = C + I + G = 19.56 + 5 + 6 = 30.56
So, aggregate planned expenditure = $30.56 trillion

Equilibrium is determined where Y = AE = C + I + G = 2 + 0.6Yd + 5 + 6 = 13 + 0.6(Y-4) = 13 + 0.6Y - 2.4
So, Y - 0.6Y = 0.4Y = 10.6
So, Y = 10.6/0.4 = 26.5
So, equilibrium expenditure = $26.5 trillion