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Calculate the values of equilibrium level of income (Y), disposable income (Yd), Consumption(C) and multiplier for the given information about an economy: C= 550 + 0.6 Yd, I= 1700, G= 2350, t= 0.10 Y C=consumption, Yd= disposable income, I=investment, G=government expenditure, t= tax rate ?
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Calculate the values of equilibrium level of income (Y), disposable in...
Equilibrium level of Income (Y)
The equilibrium level of income can be calculated by using the formula:
Y = C + I + G
Where:
- C = Consumption
- I = Investment
- G = Government Expenditure
Substituting the given values:
Y = 550 + 0.6Yd + 1700 + 2350
Y = 4600 + 0.6Yd
Disposable Income (Yd)
The disposable income can be calculated by using the formula:
Yd = Y - T
Where:
- T = Tax
Substituting the given values:
T = 0.10Y
Yd = Y - 0.10Y
Yd = 0.9Y
Consumption (C)
The consumption can be calculated by using the formula:
C = 550 + 0.6Yd
Substituting the value of Yd calculated above:
C = 550 + 0.6(0.9Y)
C = 550 + 0.54Y
Multiplier
The multiplier can be calculated by using the formula:
Multiplier = 1 / (1 - MPC)
Where:
- MPC = Marginal Propensity to Consume
Substituting the value of MPC:
MPC = 0.6
Multiplier = 1 / (1 - 0.6)
Multiplier = 2.5
Explanation
The given information provides the values of consumption, investment, government expenditure, and tax rate. Using these values, we can calculate the equilibrium level of income, disposable income, consumption, and multiplier. The equilibrium level of income is the level at which the aggregate demand is equal to the aggregate supply. The disposable income is the income which is available to the households after paying the taxes. The consumption is the expenditure made by the households on goods and services. The multiplier is the factor by which a change in autonomous expenditure brings a change in the equilibrium level of income.
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Calculate the values of equilibrium level of income (Y), disposable income (Yd), Consumption(C) and multiplier for the given information about an economy: C= 550 + 0.6 Yd, I= 1700, G= 2350, t= 0.10 Y C=consumption, Yd= disposable income, I=investment, G=government expenditure, t= tax rate ?
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