Question

Given the following equation AE = 800 + .95 Y, what is equilibrium?

Group of answer choices

A. 18,000
B. somewhere in between 18,000 and 20,000
C. 16,000
D. 20,000
E. somewhere in between 18,000 and 16,000

Answer 1

Equilibrium in the context of this question refers to the level of national income where it equals aggregate expenditure. By setting Y equal to AE in the given equation and solving for Y, the equilibrium level of output is found to be 16,000.

Step-by-step explanation:

The question pertains to finding the equilibrium level of national income (Y) in an economy, according to the aggregate expenditures (AE) function provided. Equilibrium occurs where the national income (Y) equals aggregate expenditure (AE). To solve for Y in the AE function AE = 800 + .95Y, set AE equal to Y to find the equilibrium:

Y = 800 + .95Y

Subtracting .95Y from both sides gives:

Y - .95Y = 800

0.05Y = 800

Divide both sides by 0.05 to solve for Y:

Y = 800 / 0.05

Y = 16,000

Therefore, the equilibrium level of output is 16,000.