Question

If planned aggregate expenditure, PAE, equals 1000 + .75Y, then the short-run equilibrium level of income is _____.

Answer 1

To find the short-run equilibrium level of income, set planned aggregate expenditure equal to national income and solve for Y, resulting in a short-run equilibrium level of income of $4000.

Step-by-step explanation:

To find the short-run equilibrium level of income, we need to set planned aggregate expenditure (PAE) equal to national income (Y). Based on the formula given in the question, PAE = 1000 + 0.75Y, we can determine equilibrium by solving for Y where Y = PAE, which gives us Y = 1000 + 0.75Y.

To solve for Y, we first rearrange the equation to get all the terms involving Y on one side:

• Y - 0.75Y = 1000

Combine like terms:

• 0.25Y = 1000

Divide both sides by 0.25 to solve for Y:

• Y = 1000 / 0.25
• Y = 4000

Therefore, the short-run equilibrium level of income is $4000.