What is the equilibrium level of income for the given case of autonomous consumption, income, taxes, mpc, investment, and government spending?
The equilibrium level of income for the given case is $2100. This calculation is based on the Keynesian Cross formula, taking into account autonomous consumption, income, taxes, marginal propensity to consume (mpc), investment, and government spending.
Keynesian Cross Formula
The Keynesian Cross formula is used to determine the equilibrium level of income in an economy. It considers various factors such as consumption, investment, government spending, and net exports.
Calculation Process
To calculate the equilibrium level of income in this case, we first determine the components of the formula:
- Autonomous consumption (a) = $400
- Income (Y) = $2000
- Taxes (T) = $200
- Marginal Propensity to Consume (mpc) = 0.75
- Investment = $400
- Government Spending = $250
We can calculate the consumption (C) using the formula:
C = a + mpc(Y - T) = 400 + 0.75(2000 - 200) = 1450.
Next, we calculate the investment (I) which is $400 and the government spending (G) which is $250.
By adding up the components of the formula, we get:
Y = C + I + G
Y = 1450 + 400 + 250
Y = $2100
Therefore, the equilibrium level of income for this case is $2100. This indicates the level of income at which aggregate demand equals aggregate supply in the economy.
In conclusion, the equilibrium level of income is a crucial concept in macroeconomics as it helps in analyzing the overall economic stability and growth. By understanding the components of the Keynesian Cross formula and how to calculate them, policymakers can make informed decisions to maintain a balanced economy.