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Given the following equations for a certain economy C = 100 + 0.75 Y...

      

Given the following equations for a certain economy:

C = 100 + 0.75 Y

I = 560

X= 350

M = 40 + 0.15Y

Suppose the figures are in US Dollars billion, determine the equilibrium level of income. (5 Marks)

  

Answers


Zainabu
Solution

The expenditure E components C + I + X – M add to total production or income, Y.

Hence
Y = E = C + I + X - M

Y = (100 + 0.75 Y) + 560 + 350 - (40 + 0.15 Y)

Y = 970 + 0.6Y

Y - 0.6Y = 970

0.4Y = 970

Y = 970/0.4 = 2,425

Therefore the equilibrium level of income is US$ 2,425 billion



Zainabdawa answered the question on August 1, 2018 at 08:49


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