1. Consider an economy that is characterized by the following parameters and quantities (in monetary units): C...
Question:
1. Consider an economy that is characterized by the following parameters and quantities (in monetary
units):
C = c0+c1YD,
I = 400,
G = 300,
T = 200,
c0 = 200,
c1 = 0.5.
(a) Starting from the goods-market equilibrium condition that Y =Z, where Y denotes aggregate
output and Z denotes aggregate demand, derive an analytical expression for equilibrium income,
Y (without using the given numbers).
(b) Now substitute the given numbers and derive the equilibrium level of income (= production),
Y, and the equilibrium level of disposable income, YD, in this economy.
(c) Compute the equilibrium level of private consumption, C, and the government surplus or deficit,
T G. How large are C, I, and G as a fraction of GDP, Y?
Process Dynamics and Control
ISBN: 978-1119385561
4th edition
Authors: Dale E. Seborg, Thomas F. Edgar, Duncan A. Mellichamp, Francis J. Doyle