Question

The equations in an economy are given as: C=Yd, Investment=320, Tax=300, Government expenditure=300, Exports=300-0.05Y.

a)Find the equilibrium level of income

b)Find the net exports at equilibrium level of income

Answer 1

a) The consumption function is $C=Yd$

$C=(Y-T)$

$C=(Y-300)$

The equilibrium condition is given as $Y=C+I+G+X-M$

Thus, $Y=(Y-300)-0.05Y-0$

$Y=Y--0.05Y$

$Y-0.8YY=940$

$Y=940/0.25$

The equilibrium level of income is $3760$

b) Imports $M=0$ Net Exports

$X-M=300-0.05(3760)-0=300-188=112$