Question

C = 100 + 0.8Yd
investment (I) = 200
govt. exp. (G) = 200
export = 1000
import function(M) = 20+0.2Y

(a) Calculate equilibrium income Y
(b) Calculate value of multiplier and equilibrium income if import function (M) = 20+0.3Y

Answer 1

$a) Y=100+0.8Yd+200+200+1000-(20+0.2Y)$

$Y=1480+0.6Y$

$Y-0.6Y=1480$

$0.4Y=1480$

$Y=3700$

$b) Y=100+0.8Yd+200+200+1000-(20+0.3Y)$

$Y=1480+0.5Y$

$0.5Y=1480$

$Y=2960$