Answer to Question #127900 in Macroeconomics for Brian Obadiah

Question

A hypothetical closed economy has a national income model of the form y=C+I+G where C=30+0.8Y and I and G and private Investment expenditure are exogenously determined to= 50 and 80 units respectively. Compute the national equilibrium level of income for this economy using aggregate income equal aggregate expenditure and withdrawals and equal injection methods

Answer 1

1.Using aggregate income equal aggregate expenditure method:

$Y=C+I+G$

$Y=30+0.8Y+50+80$

$Y-0.8Y=30+50+80$

$0.2Y=160$

$Y=\frac{160}{0.2}$

$Y=800$

2.Using withdrawals and equal injection method:

$Value \; of \; withdrawals=Value \; of\; injections$

$Savings=Investment+Government \; expenditure$

$Y-C=I+G$

$Y-30-0.8Y=50+80$

$Y-0.8Y=50+80+30$

$0.2Y=160$

$Y=\frac{160}{0.2}$

$Y=800$