Question

Given \[\overline{C}=100\], \[c=0.75\], \[T=100\], \[\overline{TR}=0\], \[I=200\] and \[G=300\], the equilibrium income \[Y^*\] is:

Options

• 2300

• 2100

• 1600

• 1900

Answer 1

Substituting into \[Y^*=\frac{1}{1-c}\left(\overline{C}- cT+c\overline{TR}+I+G\right)\]: the bracket equals \[100-0.75(100)+0+200+300=525\], and the multiplier is \[\frac{1}{0.25}=4\]. Thus \[Y^*=4\times525=2100\].