In a closed economy with no government, the equilibrium is where aggregate demand equals aggregate supply. Aggregate demand is the sum of consumption (C) and investment (I). Given the equations:

C = 100 + 0.6Y (1)
I = 200 (2)

Aggregate demand (AD) can be expressed as:

AD = C + I
AD = (100 + 0.6Y) + 200
AD = 300 + 0.6Y

In equilibrium, aggregate demand equals aggregate supply. In a simple economy like this, aggregate supply is just the total output, which is income (Y). So, we set AD = Y:

300 + 0.6Y = Y

Solving this equation for Y gives us the equilibrium level of income:

0.4Y = 300
Y = 300 / 0.4
Y = 750

Substituting Y = 750 into the consumption function (1) gives us the equilibrium level of consumption:

C = 100 + 0.6*750
C = 100 + 450
C = 550

So, the equilibrium level of consumption is 550.

Question

In a closed economy with no government, the equilibrium is where aggregate demand equals aggregate supply. Aggregate demand is the sum of consumption (C) and investment (I). Given the equations:

C = 100 + 0.6Y (1)
I = 200 (2)

Aggregate demand (AD) can be expressed as:

AD = C + I
AD = (100 + 0.6Y) + 200
AD = 300 + 0.6Y

In equilibrium, aggregate demand equals aggregate supply. In a simple economy like this, aggregate supply is just the total output, which is income (Y). So, we set AD = Y:

300 + 0.6Y = Y

Solving this equation for Y gives us the equilibrium level of income:

0.4Y = 300
Y = 300 / 0.4
Y = 750

Substituting Y = 750 into the consumption function (1) gives us the equilibrium level of consumption:

C = 100 + 0.6*750
C = 100 + 450
C = 550

So, the equilibrium level of consumption is 550.

Knowee AI · Accepted Answer

In a closed economy with no government, the equilibrium is where aggregate demand equals aggregate supply. Aggregate demand is the sum of consumption (C) and investment (I). Given the equations:

C = 100 + 0.6Y (1)
I = 200 (2)

Aggregate demand (AD) can be expressed as:

AD = C + I
AD = (100 + 0.6Y) + 200
AD = 300 + 0.6Y

In equilibrium, aggregate demand equals aggregate supply. In a simple economy like this, aggregate supply is just the total output, which is income (Y). So, we set AD = Y:

300 + 0.6Y = Y

Solving this equation for Y gives us the equilibrium level of income:

0.4Y = 300
Y = 300 / 0.4
Y = 750

Substituting Y = 750 into the consumption function (1) gives us the equilibrium level of consumption:

C = 100 + 0.6*750
C = 100 + 450
C = 550

So, the equilibrium level of consumption is 550.

Assume the economy is closed and there is no government. The aggregate demand components are described below:C = 100 + 0.6Y (1)I = 200 (2)What is the consumption of equilibrium?

Question

Solution

Similar Questions

Upgrade your grade with Knowee