Question

C=100+0.75Y

T=50+0.5Y

X=200

M=50+0.25Y

G=150. Illustrate aggregate spending and equilibrium level of income on a diagram

Answer 1

Aggregate spending--

$AE=C + G + X – M$

$=100+0.75y+150+200-50-0.2y\\=0.55y+400$

Equillibrium level of income-

The equllibrium occurs when $AE=y$

$\Rightarrow 0.55y+450=y\\\Rightarrow 0.45y=450\Rightarrow y=1000$

Level of equillibrium income y=1000