7.7: Aggregate demand and equilibrium output
- Page ID
- 45776
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a) Equilibrium with no Government | |||
Autonomous expenditure | =A0 | Autonomous expenditure | =80 |
Induced expenditure | =(c–m)Y | Induced expenditure | =(0.8–0.2)Y=0.6Y |
Aggregate expenditure | =A0+(c–m)Y | Aggregate expenditure | =80+0.6Y |
Equilibrium income: | Equilibrium income: | ||
Y=A0+(c–m)Y | Y=80+0.6Y | ||
Y=200 | |||
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b) Equilibrium with added government sector: G=25, NT=0.10Y | |||
Autonomous expenditure | =A0+G0 | Autonomous expenditure | =105 |
Induced expenditure | =c(1–t)–m | Induced expenditure | |
Aggregate expenditure | Aggregate expenditure | =105+0.52Y | |
Equilibrium income: | Equilibrium income: | ||
Y=105+0.52Y | |||
Y(1–0.52)=105 | |||
Y=218.4 |