Hypothetical Information Sample Assignment

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Hypothetical Information Sample Assignment

Given the following hypothetical information about an economy. Find out the equilibrium level of GDP.
Consumption function (C) 100 + 0.6Yd
Autonomous investment (I) = Rs 500 crore
Government expenditure (G) = 800 CRORE
Taxes (T = Rs. 200 crore
Exports(X) = 200 CRORE
Import function (M) = 50 + 0.3Y

Soltution:

We know that, in an open economy equilibrium national income is determined whare:
                                    
                                      Y = C + I + G +X-M
Putting the values:
=>                                  Y = 100 + 0.06Yd+ 500 +800 +200-(50 + 0.3Y)
=>                                  Y = 100 + 0.06(Y-T)+ 500 +800 +200-(50 + 0.3Y)
=>                                  Y = 100 + 0.6-0.6 X 200 + 500 +800 + 200-50-0.3Y
=>                                  Y = 100 + 0.3Y-120 + 500 +800 + 200-50
=>                            Y-0.3 = 1430
=>                             0.7Y = 1430

=>                                 Y =  1430    = Rs 2042.85 crore
                                              0.7

Thus, the equilibrium GDP is Rs 2042.85 crore.


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