Question

If the consumption function is C​ = 100​ + 0.75Y and planned investment spending is 500​, what will be the equilibrium level of​ output? Ye​ = ​$ nothing. ​(Enter your response as an​ integer.)

Answer 1

The equilibrium level of output for the consumption function C = 100 + 0.75Y, with planned investment spending of 500, is calculated to be $2,400.

Step-by-step explanation:

To determine the equilibrium level of output in this scenario, we need to equate aggregate demand with aggregate supply. The consumption function is given as C = 100 + 0.75Y and planned investment spending is 500. Aggregate expenditure, in this case, is the sum of consumption (C) and investment (I) which is C + I = 100 + 0.75Y + 500. Since in equilibrium, aggregate expenditure equals output (Y), we can set up the equation Y = 100 + 0.75Y + 500.

Solving for Y, we combine like terms to get Y - 0.75Y = 100 + 500, simplifying further we get 0.25Y = 600. Dividing both sides by 0.25, we find Y = 2400. Therefore, in this scenario, the equilibrium level of output is $2,400.

Answer 2

The equilibrium level of​ output will be Y=2200

Step-by-step explanation:

Comnsider the following formulas to solve the exercise.

1. Using the Expenditure approach to GDP,

Y=C+I+G

Y=200 + 0.75(Y-200)+200+300

Y=700+0.75Y-150

0.25Y=550

The equilibrium level of​ output will be Y=2200