Help me with a multiple choice question (2 Viewers)

[oompaman]

Hey,

Having trouble approaching this question: http://www4.boardofstudies.nsw.edu....swer=&courseID=15110&testQuestionID=293318743

Any ideas on how to do it, also what topic is it in cause i have no recollection of it

Thanks

 

[OzKo]

You may recall the equation for Aggregate Demand (GDP) given by the equation Y = C + I + G + (X-M).

Essentially what you do in this case, is use this equation to solve for Y using the information given in the question.

Answer will end up being 700 (D).

 

[Myans]

To clarify what OzKo saying with working:

Y (Equilibrium Income) = Consumption + Investment
Y = 100 + 0.8Y + 40
Y-0.8Y = 140
0.2Y = 140
Y=700

 

[deswa1]

Alternatively, you could note that savings must equal investment and therefore:

0.2Y-100 (savings function)=40
0.2Y=140
Y=700