Question

An economy with zero net exports is described below:

C = 40 + 0.8 (Y - T)
I p = 70
G = 120
NX = 0
T = 150
Y* = 580 The multiplier in this economy is 5.
Find short-run equilibrium output.

Answer 1

The short-run equilibrium output in an economy with zero net exports is 650.

Step-by-step explanation:

The given equations represent an economy with zero net exports. To find the short-run equilibrium output, we need to determine the value of Y (national income) when its value is equal to aggregate expenditure (AE). Substituting the given values into the equation:

Y = AE = C + I + G + NX

Y = 40 + 0.8(Y - T) + 70 + 120 + 0

Y = 40 + 0.8(Y - 150) + 70 + 120

Y = 40 + 0.8Y - 120 + 70 + 120

0.2Y = 130

Y = 650

Therefore, the short-run equilibrium output is 650.