Question

# KEYNESIAN CROSS DIAGRAMPlease find below the the full solution of the following problem

.

I would like to know all the calculations necessary to

-fill te table

-solve for Y

-Understand the relation with the keynesian theory

Thank you

1. The chart below represents the data behind a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income; the MPC out of the after-tax income is 0.8; investment is \$2,000; government spending is \$1,000; exports are \$2,000 and imports are 0.05 of after-tax income. What is the equilibrium level of output for this economy?

Solution: The following table illustrates the completed table. The equilibrium is level is italicized. We can solve for Y, where Y = National Income using:

Y=AE= C + I + G + X – M

Y = \$500 +0.8(Y-T) + \$2,000 + \$1,000 + \$2,000 – 0.05 (Y – T)

Solving for Y, we see that the equilibrium level of output is Y = \$10,000.

National
After – tax
Consumption | It G +’x
Minus
Aggregate
Income
Income*
Imports
Expenditures
\$8, 000
\$4, 340
\$9, 000
\$10, 000
\$11, 000
\$12, 000
\$13, 000
Macroeconomics