Answer to Question #112260 in Macroeconomics for Shruti Gupta

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