CameraIcon
CameraIcon
SearchIcon
MyQuestionIcon
MyQuestionIcon
Question

Suppose C = 40 + 0.8YD, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y

(i) Find equilibrium income.

(ii) Find the net export balance at equilibrium income.

(iii) What happens to equilibrium income and the net export balance when the government purchases increases from 40 to 50?

Open in App
Solution

Given, C = 40 + 0.8YD

T = 50

I = 60

G = 40

X = 90

M = 50 + 0.05Y

(i) Equilibrium level of income

Y = C + c (Y - T) + I + G + X - M - mY

Y = A1c+M,
Here A = C - cT + I + G + X - M

=C - cT + I + G + X + M1c+m

= 400.8×50+60+40+905010.8+0.05

= 1400.25

= 14025×100

= 560

(ii) Net exports at equilibrium income

NX = X - M - mY

= 90 - 50 - 0.05 × 560

= 40 - 28

= 12

(iii) If G increases from 40 to 50,

= C - cT + I + G + X - M1 - c + m

= 400.8×50+60+50+905010.8+0.05

= 4040+60+50+400.25

= 1500.25=15025×100=600

Net export balance:

NX = X - M - mY

= 90 - 50 - 0.05 × 600

= 40 - 30 = 10


flag
Suggest Corrections
thumbs-up
1
BNAT
mid-banner-image