Question

Suppose consumer spending is specified as C = k50,000 + 0.50Y , investment spending k75,000 and next exports k15,000.

a) Plot a line representing consumer spending and label it C. Also plot a line representing consumer, investment and net exports spending and label it (C+I+Xn). Draw a 45

Answer 1

The equilibrium level of output is at point E where

AD=AS

At full employment level.

At equilibrium level

AD=AS

By putting values given the question

$Y=AD\\ Y=C+I+X_n\\ Y=k50000+0.50Y+k75000+k15000\\ Y-0.50Y=k140000\\ Y=k\frac{140000}{0.50}\\ Y=k280000$

It is the equilibrium level.