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Consumption function C = 95 + .75Yd Taxes T = 50 Investment function I = 60 Disposable income Yd = Y – T Government spending G = 85 ExportsEX = 20ImportsIM = .05(Yd)Equilibrium Income (in the aggregate):Y = C + I + G + EX – IMAll right, so now our equilibrium equation looks like this (all I’m doing is putting values where they go):Y = 95 + .75(Yd) + 60 + 85 + 20 – .05(Yd)We know that Yd = Y-T, and that T=50 (from the information given in the problem). Put that in:Y = 95 + .75(Y-50) + 60 + 85 + 20 – .05(Y-50)Some calculations to get rid of the parenthesis (.75 x 50 and .05 x 50):Basic adding and subtracting:Y = 230 + .70YSubtract .70Y to get our Y on the left side:.3Y = 230Divide by .3:Y = 766.67So equilibrium income is equal to $766.67 billion. While it doesn’t address all of the parts of the question, this should help you get started with Week 5, discussion question 2!
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