Question C only: If intended investment increases by 10 units to 60 units, by ho

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Question C only:

If intended investment increases by 10 units to 60 units, by how much will equilibrium income rise?  How much will be the new equilibrium income?

1. Suppose that the behavior of households and firms in an economy is determined by the following equations C=50+0.9Y 11(intended investment)-50 Answer the following questions. using algebraic manipulations onlv a. What is the equation for the AD curve? b. What is the level of equilibrium income? c. If intended investment increases by 10 units to 60 units, by how much will equilibrium income rise? How much will be the new equilibrium income?

Explanation / Answer

AD = Y=C+I T

The aggregate demand equation will be

Y = 50+0.9Y+50 or AD = 100+0.90Y

0.10Y = 100

Y = 100/0.10 = 1000 (Equilibrium Income)

AD = Y=C+I T

The aggregate demand equation will be

Y = 50+0.9Y+60 or AD = 110+0.90Y

0.10Y = 110

Y = 1100 (new equilibrium income)

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