Consider the following behavioral equations: C=c0 +c1YD T=t0 +t1Y YD = Y - T G and I are both constant. Assume that t1 is between 0 and 1. a. Solve for equilibrium output Y=C+I+G = C0+C1YD+I+G=C0+C1YD+I+G = C0+C1(Y-T)+I+G= C0+C1Y-C1T+I+G = C0+C1(t0+t1Y

Consider the following behavioral equations:

C=c0 +c1YD

T=t0 +t1Y YD = Y - T

G and I are both constant. Assume that t1 is between 0 and 1.

a. Solve for equilibrium output

Y=C+I+G = C0+C1YD+I+G=C0+C1YD+I+G = C0+C1(Y-T)+I+G= C0+C1Y-C1T+I+G =
C0+C1(t0+t1Y)+I+G= C0+C1t0+C1t1Y)+I+G => Y=(C0-C1t0+I+G)/1-C1+C1t1


C = 160 + 0.6YD I = 150
G = 150 T = 100
Solve for the following variables.

a. Equilibrium GDP (Y)
GDP = C + I + G + X – IM
C = 160 + 0.6YD *YD = Y-T
I = 150
G= 150
T = 100
So, GDP (Y) = 160 + 0.6(Y-100) + 150 + 150 => Y=0.6Y + 400 => 400 = 0.6Y => 0.4Y =
400. Therefore, Y=1000

b. Disposable income (YD)
YD=Y-T
YD=1000-100=900

c. Consumption spending (C)
C=160+0.6YD
=160+0.6X900 = 700

#3. Use the economy described in Problem 2.

a. Solve for equilibrium output. Compute total demand. Is it equal to production?
Explain.

Equilibrium output (Y) = C+I+G = 160+0.6YD+150+150 = 460 + 0.6YD = 460+0.6(Y-100)
= 400+0.6Y

Y=400+0.6Y

0.4Y=400, therefore, Y=1000

Total demand = C+I+G = 160+0.6YD+150+150 = [{160+0.6(Y-100)}+150+150] = 160 +
0.6X900= 1000

As a result, the equilibrium output and total demand are equal.