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Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .?
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Suppose you have following information about an economy: C= 150 0.8 ...
Equilibrium level of Income and Multiplier:
To find the equilibrium level of income and the value of the multiplier, we can use the following formula:
Y = C + I + G + NX
Where Y is the equilibrium level of income, C is consumption, I is investment, G is government expenditure, and NX is net exports.
Substituting the given values, we get:
Y = 150 + 0.8Y + 100 + 200 + 20
Y - 0.8Y = 470
0.2Y = 470
Y = 2350
Therefore, the equilibrium level of income is Rs. 2350.
The multiplier can be calculated using the following formula:
Multiplier = 1 / (1 - MPC)
Where MPC is the marginal propensity to consume, which is given as 0.8 - 0.8Yd/C.
Substituting the given values, we get:
MPC = 0.8 - 0.8(2350-50)/150
MPC = 0.6
Therefore, the multiplier is 1 / (1 - 0.6) = 2.5
New Equilibrium Level of Income:
To calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300, we can use the same formula as before:
Y = C + I + G + NX
Substituting the new value of G, we get:
Y = 150 + 0.8Y + 100 + 300 + 20
Y - 0.8Y = 570
0.2Y = 570
Y = 2850
Therefore, the new equilibrium level of income is Rs. 2850.
Explanation:
The equilibrium level of income is the point where aggregate demand (AD) equals aggregate supply (AS). In other words, it is the level of income where planned expenditure equals actual output. The multiplier effect shows how changes in one component of AD (such as government expenditure) can lead to larger changes in the equilibrium level of income. This is because any increase in government expenditure will increase the aggregate demand, which in turn increases the equilibrium level of income. The multiplier effect occurs because any increase in income leads to an increase in consumption, which further increases the aggregate demand and the equilibrium level of income.
To find the equilibrium level of income and the value of the multiplier, we can use the following formula:
Y = C + I + G + NX
Where Y is the equilibrium level of income, C is consumption, I is investment, G is government expenditure, and NX is net exports.
Substituting the given values, we get:
Y = 150 + 0.8Y + 100 + 200 + 20
Y - 0.8Y = 470
0.2Y = 470
Y = 2350
Therefore, the equilibrium level of income is Rs. 2350.
The multiplier can be calculated using the following formula:
Multiplier = 1 / (1 - MPC)
Where MPC is the marginal propensity to consume, which is given as 0.8 - 0.8Yd/C.
Substituting the given values, we get:
MPC = 0.8 - 0.8(2350-50)/150
MPC = 0.6
Therefore, the multiplier is 1 / (1 - 0.6) = 2.5
New Equilibrium Level of Income:
To calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300, we can use the same formula as before:
Y = C + I + G + NX
Substituting the new value of G, we get:
Y = 150 + 0.8Y + 100 + 300 + 20
Y - 0.8Y = 570
0.2Y = 570
Y = 2850
Therefore, the new equilibrium level of income is Rs. 2850.
Explanation:
The equilibrium level of income is the point where aggregate demand (AD) equals aggregate supply (AS). In other words, it is the level of income where planned expenditure equals actual output. The multiplier effect shows how changes in one component of AD (such as government expenditure) can lead to larger changes in the equilibrium level of income. This is because any increase in government expenditure will increase the aggregate demand, which in turn increases the equilibrium level of income. The multiplier effect occurs because any increase in income leads to an increase in consumption, which further increases the aggregate demand and the equilibrium level of income.
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Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .?
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Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .?.
Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose you have following information about an economy: C= 150 0.8 Yd, I= 100, G = 200, T = 50, NX = 20 Find the equilibrium level of income and the value of multiplier. Calculate the new equilibrium level of income if government expenditure increases from Rs. 200 to Rs. 300 .?.
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