Suppose that the economy is characterized by the following behavioral? equations:

C? = 120 +0.70YD

I ?= 180

G? = 160

T? = 110

 

a)Equilibrium GDP ?(Y?) ?= (Round your response to two decimal places?.)

b) Disposable Income (YD) =(Round your response to two decimal places?.)

c) Consumption Spending (C) =(Round your response to two decimal places?.)

a. Equilibrium GDP(Y) = $1,276.67

b. Disposable Income (YD) = $1,166.67

c. Consumption Spending (C) = $936.67

Step-by-step explanation

a. To solve for equilibrium value of Y, we set Y equal to the total expenditures, Z, and then solve for Y.  Therefore, in our question which is a closed economy, Z is given by:

Z = C + I + G

Z = 120 + 0.70YD + 180 + 160

Since disposable income, YD = Y - T, then,

Z = 120 + 0.70(Y-T) + 180 + 160

Substituting T = 110,

Z = 120 + 0.70(Y-110) + 180 + 160

Setting Z = Y yields;

Y = 120 + 0.70(Y-110) + 180 + 160

Solving for Y yields;

Y = 120 + 0.70(Y-110) + 180 + 160

Y = 120 + 0.70Y - 77 + 180 + 160

Y - 0.70Y = 120 - 77 + 180 + 160

0.3Y = 383

Y = 383/0.3

    = $1,276.67

Therefore, equilibrium GDP(Y) is $1,276.67

b. Disposable income, YD = Y - T

                                            = $1,276.67 - 110

                                            = $1,166.67

c. Consumption Spending (C) = 120 + 0.70YD

                                                = 120 = 0.70(1,166.67)

                                                 = $936.67