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Question
Suppose C = 100 + 0.75Y D, I= 500, G = 750, taxes are 20 per cent of income, X = 150, M = 100 + 0.2Y. Calculate equilibrium income.
Options
2333
4333
1333
None of the above
MCQ
Solution
2333
Explanation:
C = 100 + 0.75YD
I = 500
G = 750
X = 150
M = 100 + 0.2Y
Equilibrium income (Y) = C + c(Y − T) + I + G + X − M − mY
Or, Y = 100 + 0.75 `("Y" - 20/100 "Y") + 500 + 750 + 150 - 100 - 0.2"Y"`
Or, Y = `1400 + 75/100 xx (4"Y")/5 - 0.2"Y"`
Or, Y = `1400 + 3/5 "Y" - 0.2"Y"`
Or, `(6"Y")/10`
= 1400
Y = `(1400 xx10)/6`
= `7000/3`
= 2333
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