Given the following data on a simple closed economy:C= 10 +0.75 YI = 20G = 40where C is aggregate consumption, Y is national income, G is government expenditure ongoods and services, and I is investment expenditure.Note: There are no taxes assumed in parts (i) to (iv).(i) What is the equilibrium level of national income? Show all your workings.(ii) What is the value of aggregate consumption and the value of aggregate savings at theequilibrium level of the national income? Show all your workings(iii) What would be the new level of national income if government expenditure increasedby 10? Show all your workings.(iv) If a tax rate of 1/3 of national income was introduced, what would be the newequilibrium level of national income in the economy outlined above. Show all yourworkings.

Given information: C = 10 + 0.75Y ------------> Consumption function I = 20…

Answered: Given the following data on a simple…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Given the following data on a simple closed economy:
C= 10 +0.75 Y
I = 20
G = 40
where C is aggregate consumption, Y is national income, G is government expenditure on
goods and services, and I is investment expenditure.
Note: There are no taxes assumed in parts (i) to (iv).
(i) What is the equilibrium level of national income? Show all your workings.
(ii) What is the value of aggregate consumption and the value of aggregate savings at the
equilibrium level of the national income? Show all your workings
(iii) What would be the new level of national income if government expenditure increased
by 10? Show all your workings.
(iv) If a tax rate of 1/3 of national income was introduced, what would be the new
equilibrium level of national income in the economy outlined above. Show all your
workings.

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If a tax rate of 1/3 of national income were introduced, what would be the new equilibrium level of national income in the economy outlined above. Show all your workings and explain the mechanisms through which the economy reaches the new equilibrium.

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