T = 20 + 0.2 × Y T R = 10 − 0.1 × Y where Y is national income. The basic consumption function is given by C = 30 + 0.8 × YD where YD is disposable national income. The desired investment is an autonomous term I = 30

T = 20 + 0.2 × Y T R = 10 − 0.1 × Y where Y is national income. The basic consumption function is given by C = 30 + 0.8 × YD where YD is disposable national income. The desired investment is an autonomous term I = 30

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter19: The Keynesian Model In Action

Section: Chapter Questions

Problem 1SQ

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Question

A simple Macro model.

In a closed economy (no trade), the government does three things. It purchases goods and services (G), it collects tax revenue (T) and it makes transfers to household and businesses (TR).

G = 50

T = 20 + 0.2 × Y

T R = 10 − 0.1 × Y

where Y is national income.

The basic consumption function is given by

C = 30 + 0.8 × Y_D

where Y_D is disposable national income.

The desired investment is an autonomous term

I = 30

a) Write down the equation for the AE (aggregate expenditure) function for this economy.

b) Compute the equilibrium level of national income in this economy.

c) Compute the value of the simple multiplier.

Definition Definition Monetary value of all goods and services produced in an economy during a financial year. National income also refers to the total income earned by the factors of production during a financial year.

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