Question

You are given the following data concerning​ Freedonia, a legendary​ country: Consumption​ Function: C​ = 200 ​+ 0.8Y ​Investment: I​ = 200 Aggregate Expenditure​ Function: AE​ = C​ + I ​Equilibrium: AE​ = Y Calculate the​ following: a. The level of equilibrium​ income, Y​ = nothing. ​(Enter your response as an​ integer.)

Answer 1

Answer:

10,000

Explanation:

Let the following equations

(1) C​ = 200 ​+ 0.8Y

(2) AE​ = C​ + I

(3) I = 200

In an open economy, equilibrium income equals the sum of aggregate expenditures: consumption + investment

(4) In equilibrium: AE = Y  

So aggregating (2) and (4) we have: C + I = Y

solve for Y:

200+ 0.8Y = Y

Then: 0.2Y = 200

Y = 10.000

The equilibrium income is 10,000