Question

The table below provides information for the economy of Zawi.

 C = 25 + 0.6Y XN = 15 − 0.1Y I = 100 G = 100

a. The value of equilibrium income is \$

b. Set up a balancing row to verify your calculations (the tax equation is T = 80 + 0.15Y and X = 210). Enter your responses as whole numbers.

 Y T YD C S I G X IM XN AE

c. If exports decrease by 60, the new equilibrium income is \$

a.

Equilibrium income, Y

= C + I + G + X net

= 25 + 0.6Y + 100 + 100 + 15 - 0.1y

= 240 + 0.5Y

=> Y - 0.5Y = 240

=> 0.5Y = 240

b.

T = 80 + 0.15Y = 80 + 0.15*480 = 152

C = 25 + 0.6Y = 25 + 0.6*480 = 313

X net = 15 - 0.1Y = 15 - 0.1*480 = - 33

=> IM = X - X net = 210 - (-33) = 243

Y        T         Yd          C          S           I           G             X         IM

480    152      328       313        15       100        100          210       243

Check : Y = C + I + G + X - IM = 313 + 100 + 100 + 210 - 243 = 480 (OK)

c.

If X decreases by 60, Y also decrease by 60.

So, new equilibrium income = 480 - 60 = 420 (ANSWER).

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