SELECT * FROM question_mgmt as q WHERE id=5454 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=607 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED)

Question:

Suppose C = 40 + 0.8Y D, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y

(a) Find equilibrium income. (b) Find the net export balance at equilibrium income (c) What happens to equilibrium income and the net export balance when the government purchases increase from 40 and 50?

Answer:

C = 40 + 0.8YD
T = 50
I = 60
G = 40
X = 90
M = 50 + 0.05Y

(a) Equilibrium level of income

Y = C + c (Y - T) + I + G + X - M – mY

     = 560

(b) Net exports at equilibrium income 

NX = X - M - My

= 90 – 50 -0.05×560
= 40 – 28 =12

(c) When G increase from 40 to 50,

Net export balance at equilibrium income

NX = X - (M - mY)
= 90 - 50 + 0.05 × 600
= 40 - 30 = 10


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