Suppose that the behavior of households and firms in an economy is determined by the following...

Question

Suppose that the behavior of households and firms in an economy is determined by the following equations

C=50+0.9Y

Ii(intended investment)=50

Answer the following questions, using algebraic manipulations only.

What is the equation for the AD curve?
What is the level of equilibrium income?
If intended investment increases by 10 units to 60 units, by how much will equilibrium income rise? How much will be the new equilibrium income?

Robert · Accepted Answer

1. What is the equation for the AD curve? 
Equation AD is 
AD = C+I  
Y = 50+0.9Y+50 
2. What is the level of equilibrium income? 
Y = 50+0.9Y+50  
   = 100/0.1 = 100 
Equilibrium income = 1000 
3. If intended investment increases by 10 units to 60 units,

Suppose that the behavior of households and firms in an economy is determined by the following equations C=50+0.9Y Ii(intended investment)=50 Answer the following questions, using algebraic...

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