Question

Y =C+I+G Let the national income model be: C = a + b(Y - T) T= d+tY where Y is national income, C is consumption expenditure, I is investment expenditure, G is government expenditure and T is taxes. Given that a = 1, b = 0.6,d = 1, t = 0.1 and I + G = 64. 1. Write the model in a matrix form of the system with 2 unknown variables Y and C

Answer 1

To calculate equilibrium in an economy, we set national income (Y) equal to aggregate expenditure (AE) and use the given model parameters to identify the point where Y = AE. By substituting known values into the equation, we can solve for Y and determine the equilibrium level of income.

Step-by-step explanation:

To find the equilibrium for an economy, we solve the equation where national income (Y) is equal to aggregate expenditure (AE). The model given can be written as:

Y = C + I + G + X - M

By plugging in the given values and parameters, we obtain:

T = Taxes = tY

C = Consumption = a + b(Y - T)

I = Investment expenditure

G = Government spending

X = Exports

M = Imports = mY, where m is the marginal propensity to import

Therefore, the equilibrium condition Y = AE becomes:

Y = a + b(Y - T) + I + G + X - mY

Substituting the values of a, b, t, and m, and given that I and G are components of the autonomous spending, we can solve for Y to find the equilibrium level of income for this economy.