Question
Asked Oct 21, 2019
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Problem 2: Consider a closed three sector economy.
Given the following equations:
(1)
(2)
(3)
(4)
|(5)
(6)
Y C+I+G
C=120+0.8Yd
Yd=Y-T
T- 2000.25 Y
= 320
G 480
a) Solve for equilibrium level Y*
b) What does the variable Y* stand for? How does it differ from Yd? Explain
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Problem 2: Consider a closed three sector economy. Given the following equations: (1) (2) (3) (4) |(5) (6) Y C+I+G C=120+0.8Yd Yd=Y-T T- 2000.25 Y = 320 G 480 a) Solve for equilibrium level Y* b) What does the variable Y* stand for? How does it differ from Yd? Explain

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Expert Answer

Step 1

a) Equilibrium level in an economy is the point where income in economy is equal to expenditure.

From the information given in the question:

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Y=C+I+G It is given that C 120 0.8Y Also, I 320, G 480 Y=120 0.8Y, +320 480 Here, YYT Y 920 0.8(Y - T) Y 920 0.8Y - 0.8T Y - 0.8Y 920 - 0.8T

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Step 2

Now, it is given that ...

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0.2Y 920 - 0.8(200 0.25Y) 0.2Y 920 -0.8(200) - 0.8(0.25Y) 0.2Y 920 160 - 0.2Y 0.2Y 0.2Y 760 0.4Y 760 760 Y = 0.4 Y 1,900

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