Question

Given Y = C + I + G c = Co + bY, I = Io and G = Go Where Co = 135,
(i) Find the equation for the equilibrium level of income in the reduced form,
(ii) Solve the equilibrium level of income​

Answer 1

Most simply, the formula for the equilibrium level of income is when aggregate supply (AS) is equal to aggregate demand (AD), where AS = AD. Adding a little complexity, the formula becomes Y = C + I + G, where Y is aggregate income, C is consumption, I is investment expenditure, and G is government expenditure.

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