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Unformatted text preview: along the 45degree line (the slope of this line is 1). This is where Planned Expenditures (E) are equal to Actual Expenditures (Y). 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 (this is the equilibrium income when G = 150) E = C + I + G E = [ 125 + 0.75 (Y T) ] + [ 151 ] + [ 100 ] (Please note that G is now 151, not 150 this represents the increase in G of $1 billion) E = 125 + 0.75 (Y 100) + 151 + 100 E = 376 + 0.75 Y 0.75 (100) E = 301 + 0.75 Y Since E = Y in equilibrium, then Y = 301 + 0.75 Y Y 0.75 Y = 301 0.25 Y = 301 Y = [1 / 0.25] 301 Y = 1204 (this is the NEW equilibrium income when G = 151)...
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 Spring '09
 Smith
 Macroeconomics

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