Equilibrium Gdp Of Economy Sample Assignment

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Equilibrium Gdp Of Economy Sample Assignment

Determine the equilibrium GDP for an economy given consumption function (C) = 200 + 0.6 Yd autonomous investment (I) = Rs 200 crore, government expenditure (G) = Rs 300 crore and government taxes Rs 120 crore

Solution :

                                       C = 200 + 0.6 Yd
                                        I = Rs 200 crore
                                       G = Rs 300 crore
                                       T = Rs 120 crore
At equilibrium,             
                                      Y = C + I + G
                                      Y = 200 + 0.6Yd + 200 +300
                                   Yd = Y-T
                                      Y = 200 +0.6 (Y-120) + 200 +300
=>                                  Y = 200 + 0.6-72 +200 +300
=>                           Y-0.6Y = 628
=>                              0.4Y = 628
=>
                             Y=   628   =  628 X 10
 =>                                 0.4          4

                                        = Rs 1570 crore
Thus, equilibrium GDP of the economy is Rs 1,570 crore.

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