Question

In a basic Keynesian macroeconomic model, it is assumed that
Y = C + I
Where;
I = 250 and C = 0.75Y.
What is the equilibrium level of Y? What increase in I would be needed to cause Y to increase to 1,200?

Answer 1

Given that, $Y=C+I$ but I=250 and $C=0.75Y$ . The equilibrium level of Y calculated as;

$Y=0.75Y+250$

collecting like terms together; $Y-0.75Y=250$ .

$0.25Y=250$

Therefore, Y =1000 which is the equilibrium level

For Y to increase to 1200 then I is increased by;

1200-( 750+250 )=200

Therefore, for Y to increase to 1200 then, I increases by 200