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Simplified national income model

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Reference no: EM132283761

Consider the simplified national income model:

AD=C + I ...(1)

Where AD is aggregate demand, C is consumption, and I is investment. Consumption is determined by a behavioral equation, which in this problem takes the form

C=2,500 +.65Y...(2)

Y is national income

Y and C are ENDOGENOUS VARIABLE and Investment is EXOGENOUS VARIABLE. Initially we assume

I=1000...(3)

The equilibrium condition requires that aggregate demand equals national income, that is

AD=Y...(4)

By using the matrix (Linear) algebra,

(i) Determine the equilibrium level of the national income (Y) and consumption (C)

(ii) Show the impact of I increased by 300 on Y and C

Reference no: EM132283761

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