Question

Find the general equilibrium income level and interest rate when:

[C = 100 + 0.75(Y - T)]
[I = 200 - 2000r]
[G = 100]
[T = 80 + 0.2Y]
[X = 50]
[M = 20 + 0.1Y]
[MS = 200]
[Lt = 0.5Y]
[Ls = 100 - 2500r]

Answer 1

The inquiry requires finding the equilibrium level of national income and the interest rate using the Keynesian cross model equations for consumption, investment, taxes, government spending, exports, imports, and money market equilibrium.

Step-by-step explanation:

To finding the general equilibrium income level and the interest rate in a given economy based on the Keynesian cross model. The provided equations include consumption function C, investment function I, government spending G, tax function T, export X, import M, money supply MS, transaction demand for money Lt, and speculative demand for money Ls.

To find the equilibrium income level (Y) and the interest rate (r), we need to find the point where aggregate expenditure equals income (Y = C + I + G + X - M) and where the demand for money equals the money supply (MS = Lt + Ls).

Since no specific numbers are provided in the initial question, here's a step-by-step explanation based on sample functions:

• First, substitute the tax function T into the consumption function C and import function M.
• Then, combine the new C, I, G, X, and M to solve for the equilibrium income level Y.
• For the interest rate, set the money supply MS equal to the sum of Lt and Ls, and solve for r.