Question

Given the following National Income Model

Y = C + I0 + G0 + X0 – Z
Where C = C0 + bYd
Yd = Y – T

T = T0 + Ty and Z = Z0 + ZYd
In this equation X and Z are export and import
• Identify endogenous and exogenous variables and parameters.
• Find out equilibrium level of Y and C

Answer 1

a)

i) Endogenous variables

Y, C, T, and Z

II) Exogenous variables

Y, T, and Z

iii) Parameters

b and d

b) At equilibrium level

i) Y = C + IO + GO + XO - Z

Y = AD

ii) C = CO + bYd

Y = AD