Question

An economy if C = 60 + 0.9Yd , investment (l)=10,G=10.T=0,X=20 M=10+0.05) ,FIND WHAT IS THE EQUILIBIRIUM INCOME,AND TRADE BALANCE, WHAT ARE THE VALUE OF FOREIGN TRADE MULTIPLIER?​

Answer 1

(i)At equilibrium level of output,

AS=AD

Y= C+I

=> Y= 200 + 0.9 Y + 3,000

=> Y - 0.9 Y = 200+ 3,000

=> 0.1 Y = 3,200

=> Y = 3,200/ 0.1 = 32,000 crores

(ii) At equilibrium level of Income, consumption expenditure is

Savings = Investment

= 3000 crores

Answer 2

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