National After – tax Consumption | It G +’x Minus Aggregate Income Income* Imports Expenditures $8, 000 $4, 340 $9, 000 $10, 000 $11, 000 $12, 000

KEYNESIAN CROSS DIAGRAM

Please find below the the full solution of the following problem .

I would like to know all the calculations necessary to

-fill te table

-solve for Y

-Understand the relation with the keynesian theory

Thank you

1.               The chart below represents the data behind a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income; the MPC out of the after-tax income is 0.8; investment is $2,000; government spending is $1,000; exports are $2,000 and imports are 0.05 of after-tax income. What is the equilibrium level of output for this economy?

Solution: The following table illustrates the completed table. The equilibrium is level is italicized.    We can solve for Y, where Y = National Income using:

Y=AE= C + I + G + X – M

Y = $500 +0.8(Y-T) + $2,000 + $1,000 + $2,000 – 0.05 (Y – T)

Solving for Y, we see that the equilibrium level of output is Y = $10,000.

  • Attachment 1
  • Attachment 2

NationalAfter – taxConsumption | It G +’xMinusAggregateIncomeIncome*ImportsExpenditures$8, 000$4, 340$9, 000$10, 000$11, 000$12, 000$13, 000

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