Compute the equilibrium level of national income

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Reference no: EM1349785

Consider the following model of a closed economy:

C = 80 + 0.8Yd
I = 60
G = 100
T = 0.2 Y
where C is consumption, Yd is disposable income , I is investment, and G is government expenditures on goods and services, T is tax net of transfers and Y is national income.

a. Solve for aggregate expenditures (AE) as a function of Y, and calculate the equilibrium level of national income. Elucidate your equilibrium in a diagram with AE on the vertical axis and Y on the horizontal axis. What is the value of the multiplier? Is the government running a surplus or deficit?

Reference no: EM1349785

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