Question:

Can someone help me with this economics problem?

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Usually i can do these types of problems, but I seem to be missing a bit of information (price of taxes)...but maybe i just don't know how to figure these problems out. (My teacher is a real crack job, he's horrible at teaching, I've pretty much had to teach everything to myself) So if anyone could help me that'd be great. here's the problem:

If autonomous consumption is $2 trillion, investment spending plus government purchases plus net exports is also $2trillion, and the MPC is .75, compute equilibirum income.

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2 ANSWERS


  1. AE=C+I+G+NX

    C=Ac+MPC*Y

    Ac=2 tril

    I+G+NX=2 tril

    MPC=0.75

    AE=2+MPC*Y + 2 = 4+0.75Y

    Equilibrium is there Y=AE, so

    Y=4+0.75Y

    0.25Y=4

    Y=4/0.25=16

    Answer: Equilibrium income Y=$16 trillion

    P.S. Taxes aren't given in your task, originally equation of consumption says:

    C=Ac+MPC*Yd

    there:

    Yd - disposable income

    Yd=Y-T

    Y-income

    T-taxes

    Ac-autonomous consumption

    But since taxes aren't given we assume it T=0 so Y=Yd, (which will actually lead to huge government deficits thus accumulating debt).


  2. see, there is no reason u cant  do without taxes, this is perfectly fine, see autonomous consuption is given so mpc  is not req. i+g+nx is given, jost assume effect of taxes is included here too it's! but just find output and demand and then the eqn,

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