Purchase Solution

Calculating the Equilibrium Output Level

Not what you're looking for?

Ask Custom Question

The economy of Alphaland is represented by the following:
C= 50 +0.25Yd
T=1000
G=1000
I=1000

(a) Calculate the equilibrium level of output. Graph your solution.
(b) If the government spending increases by 50 what is the new equilibrium level of output? Use the government spending multiplier.
(c) If the government increases taxes by 50 what is the new equilibrium level of output? Use the tax multiplier.
(d) If the government increases taxes and spending by 50 what is the new equilibrium level of output?
(e) Calculate the equilibrium level of output in case where taxes depend on income according to the following: T=-25+0.125Y.

Purchase this Solution

Solution Summary

This solution depicts the steps to estimate the equilibrium output level in different cases.

Solution Preview

Please refer attached file for solution.

2. The economy of Alphaland is represented by the following:
C= 50 +0.25Yd
T=1000
G=1000
I=1000
(a) Calculate the equilibrium level of output. Graph your solution.
Planned expenditure is given by
E= C + I + G
E = 50+0.25Yd+1000+1000
Put Yd=Y-T
E = 2050+0.25(Y-T)
E = 2050+0.25(Y-1000)
E=2050+0.25Y-250
E=1800+0.25Y
We know that in equilibrium, Y=E
Y=1800+0.25Y
0.75Y=1800
Y=2400
Graphical Representation

(b) If the government spending increases by 50 what is the new equilibrium level of output? ...

Solution provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.