Question

Consider the Keynesian model with the following parameters:

C = 200 + 0.84*DI; I = 250; X = 90; M = 60. For simplicity, assume there is no government,
so G = TR = t = 0.
Equilibrium output (YEQ) is

(a) 2500
(b) 480
(c) 571.4
(d) 3000

Answer 1

To find the equilibrium output in the given Keynesian model, we need to equate aggregate expenditure with national income. By setting aggregate expenditure equal to the equilibrium output and solving for Y, we can find the equilibrium output. In this case, the equilibrium output is approximately 571.4 (option c).

Step-by-step explanation:

To find the equilibrium output (YEQ) in the given Keynesian model, we need to equate aggregate expenditure (AE) with national income (Y). AE is the sum of consumption (C), investment (I), government spending (G), and net exports (X-M). In this case, C = 200 + 0.84*DI, I = 250, X = 90, and M = 60.

Plugging in the values, we can write AE as: AE = C + I + G + (X - M) = (200 + 0.84*DI) + 250 + 90 - 60.

By setting AE equal to YEQ and solving for Y, we can find the equilibrium output YEQ. In this case, YEQ is approximately 571.4. Therefore, the correct answer is (c) 571.4.