Q=AE, Q AQ 1 = AE =C+I+G + Xn, 1 - C = Ca + mpc Q mpc 1 m pc I= 100, G = 200, Ca = 100, Xn=-100, (C₁ + I +G + X ₁ ) a n ·A (C₂ + I + G + X ₁ ) a n mpc = 3/4

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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29. Given this model, what is the equilibrium level of income?

Q=AE, AE = C+I+G+ Xn,
1
Q
AQ
1
=
-
m pc
C = Ca + mpc Q
(C₁ + I + G + X ₁ )
a
n
·A (C ₂ + I + G + X ₁ )
a
n
1 m pc
I= 100, G = 200, Ca = 100, Xn=-100, mpc = 3/4
Transcribed Image Text:Q=AE, AE = C+I+G+ Xn, 1 Q AQ 1 = - m pc C = Ca + mpc Q (C₁ + I + G + X ₁ ) a n ·A (C ₂ + I + G + X ₁ ) a n 1 m pc I= 100, G = 200, Ca = 100, Xn=-100, mpc = 3/4
Expert Solution
Step 1: Define aggregate demand

Aggregate demand is the sum of consumption,  investment,  government spending and net export. 

This means, 

AD = C + I + G + NX 

NX = X - M 

Where, 

C is consumption 

I is investment 

G is government spending 

NX is net export 

X is export 

M is import. 

The short run equilibrium is where the AD curve intersects the SRAS curve. 

Long run equilibrium is where the AD curve intersects the SRAS and LRAS curve at a point.

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