Income Adjustment Mechanism and Synthesis of Automatic Adjustments

  1. Given C =100+0.8Y, M=150+0.20Y, I=100, and X = 350:

 

  1. (4.0 pts) Determine YE algebraically using the trade balance approach. Draw a graph and label it carefully to avoid losing points. Note that S = Y – C.

Answer:

 

 

 

 

 

 

 

 

 

  1. (5.0 pts) Starting with the algebraic and graphical results of the part (a), determine algebraically and determine graphically the effect on YE of a simultaneous decrease in S and M of 200 each. What is the size of trade balance deficit/surplus?

Answer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last Updated on April 27, 2019