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Chapter 10 Exercise 1

# Chapter 10 Exercise 1 - In addition to the mode given above...

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Chapter 10, Exercise #1 g. (p. 179, Study Guide, 6e) Given the following model, solve for the equilibrium level of income. Y= C + I + G C = 125 + 0.75 (Y – T) I = 100 G = 150 T = 100 According to the Keynesian model, we know that equilibrium occurs somewhere along the 45-degree line (the slope of this line is 1). This is where Planned Expenditures (E) are equal to Actual Expenditures (Y).
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Unformatted text preview: In addition to the mode given above, we also know that E = Y in equilibrium. E = C + I + G E = [ 125 + 0.75 (Y – T) ] + [ 150 ] + [ 100 ] E = 125 + 0.75 (Y – 100) + 150 + 100 E = 375 + 0.75 Y – 0.75 (100) E = 300 + 0.75 Y Since E = Y in equilibrium, then Y = 300 + 0.75 Y Y – 0.75 Y = 300 0.25 Y = 300 Y = [1 / 0.25] 300 Y = 1200...
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