Question #63990

Given a hypothetical consumption function of the form:
Y = C + I0 + G0
C = Î± + Î²
Where: = Y â€“ T
Y = Income
T = Taxes and that:
Compute the equilibrium level of income and consumption

Expert's answer

If Y = C + I0 + G0, C = Î± + Î²(Y - T),

then the equilibrium level of income will be Y = Î± + Î²(Y - T) = I0 + G0 and consumption will be C = Î± + Î²(Y - T) = Y - I0 - G0

then the equilibrium level of income will be Y = Î± + Î²(Y - T) = I0 + G0 and consumption will be C = Î± + Î²(Y - T) = Y - I0 - G0

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