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
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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
29. Given this model, what is the equilibrium level of income?
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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