Question

3) The following relations are given for an economy:

Autonomous Consumption 460

Marginal Propensity to Save 0.3

Autonomous Investment 18

Induced Investment Coefficient 0.1

Government Expenditure (Exogenous) 162

Transfer Income (Exogenous) 48

Exports (Exogenous) 25

Marginal Propensity to Import 0.05

a) Calculate the equilibrium level of Income, consumption, investment and import in the

above economy.

Answer 1

Y = C+I+G

Marginal Propensity to Import = import/Y

Import = 0.05 Y

G=162

C=460+0.7Y

investment = 18 +0.1Y

Y= 460+0.7 Y+18+0.1Y+162

Y= 0.8Y+640

0.2Y=640

Y=3200

Import = 0.05*3200

Import= 160