Question:
In an economy without a government sector, consumption (C) = 200 + 0.75Y, investment (I) = 500, exports (X) = 150, and imports (M) = 100. What will be the equilibrium level of national income (Y) in this economy?
(1) 3 000
(2) 3 400
(3) 3 600
(4) 3 750
(5) 3 800
Correct Answer:
(1)
Answer Explanation:
Equilibrium occurs where $Y = C + I + X – M$. Substitute the values: $Y = (200 + 0.75Y) + 500 + 150 – 100$. Simplify the equation: $Y = 750 + 0.75Y$. Subtract 0.75Y from both sides: $0.25Y = 750$. Solve for Y: $Y = 750 / 0.25 = 3000$.
Topic: Macroeconomic Equilibrium Year: 2018
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