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Answer to Question #42868 in Macroeconomics for Justin

Question #42868
if total autonomous spending is 800, the marginal propensity to save is 0.2 and the marginal tax rate is 0.25. what is the equilibrium income
Expert's answer
We can write the following formula:

Y= C = Ao + c’(Y-T),
where
Y– equilibrium income
(Y-T)– disposable income
c’– propensity to consume
C– consumption

So,
Y= 800 + (1-0.2)*(Y – 0.25Y) = 800 + 0.8*0.75Y = 800 + 0.6Y
0.4Y= 800
Y= 2000

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