BUS A3

# BUS A3 - Equilibrium level of income is when Y = AE = C I G...

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Income vs . AE and New AE Equilibrium point and breakeven point Income Consumption Savings Aggregate Expenditures \$ 8,000 \$12,000 -4,000 20,000 16,000 18,000 -2,000 26,000 24,000 24,000 0 32,000 32,000 30,000 2,000 38,000 40,000 36,000 4,000 44,000 48,000 42,000 6,000 50,000 56,000 48,000 8,000 56,000 The break even point or the equilibrium point is 56000 when Income = Aggregate Expenditures

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Multiplier= change in income/ change in Aggregate Expenditures=8000/4000=2 MPS=1/ Multiplier=1/2=0.5 MPC=1-MPS=1-0.5=0.5 Then, the MPC and MPS equals 0.5, and the multiplier equals 2.
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Unformatted text preview: Equilibrium level of income is when Y = AE = C +I + G + NX = \$56,000 MPC = change in consumption/change in income = .75 MPS = 1 - MPC = 1 - .75 = .25 Multiplier = 1/MPS = 1/.25 = 4 If government expenditure increases by \$20,000, the euilibrium level of income is likley to increase 4 times (multiplier being 4) = 20,000 * 4 = \$80,000 Therefore the the new equilibrium level of income is going to be \$136,000 (\$56,000 + \$80,000) The graph was just like on page 147 on the book....
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BUS A3 - Equilibrium level of income is when Y = AE = C I G...

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