KEYNESIAN CROSS DIAGRAM
Please 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
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.
After – tax
Consumption | It G +’x