equilibrium national income Watch

eugenius 8
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#1
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#1
hi, could someone check my answers for the first 2 bits of the question, im not 100% sure since i also got 340 as my answer for part i), and im stuck on part 3, thanks

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(a) In a closed economy with no government sector, equilibrium national income
occurs where aggregate output (Y) equals aggregate expenditure (E). Given
that E=C+I and that the consumption and investment schedules are given by :
C=70+0.75Y
I=20
i) What is the equilibrium level of national income?
ii) What is the value of the multiplier?
iii) If the actual level of national income is 350 in the present period, in
which direction will income tend to move in succeeding periods? What
would account for this movement in income?



i) Y = 70 + 0.75Y + 20
Y = 90 + 0.75Y
0.25Y = 90
Y =360

ii) Multiplier = (1/1-MPC)

since MPC is 0.75

Multiplier = (1/1-0.75) = 4

iii) national income will fall?
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danny111
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Report 7 years ago
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I would say it rises.

Your answer has income to be 360 in equilibrium, which is constant. If income is only 350 now, we know that in order to get to equilibrium it must rise.
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