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guajiro [1.7K]
3 years ago
5

In the Keynesian-cross analysis, if the consumption function is given by C = 20 + 0.7 (Y – T), and planned investment is 100, G

is 100, and T is 100, then equilibrium Y is:
Business
1 answer:
Lyrx [107]3 years ago
7 0

Answer: 500

Explanation:

At equilibrium, it should be noted that,

Y = C + I + G

where ,

C = Consumption = 20 + 0.7(Y - T)

I = Investment = 100

G = Government expenditure = 100

Y = C + I + G

Y = 20 + 0.7(Y - 100) + 100 + 100

Y = 20 + 0.7Y - 70 + 200

Y - 0.7Y = 150

0.3Y = 150

Y = 150/0.3

Y = 500

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Answer:

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(iii) Income Elasticity= 2.5 (normal good)

(iv) Advertising Elasticity: 1.5

Explanation:

The Demand function is given by

Q=100-5P+5I+15A

(1) To solve (i) we need to replace P = 200, I = 150, and A = 30 in the demand equation:

Q=100-5(200)+5(150)+15(30)=300

(2) To find the price elasticity (how much quantity demanded changes with price) we use the point price elasticity formula

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From the above equation we get: \frac{\Delta Q}{\Delta P}=-5

Replacing in the elasticity formula

\eta_{Price}=-5\frac{200}{300}=|-3.33|>1

in absolute terms the elasticity is bigger than one so it is an elastic demand.

(3) For income elasticity (how much quantity demanded changes with income), we proceed similarly as above. But the derivative is respect to income

\eta_{Income}=\frac{\Delta Q}{\Delta I}\frac{I}{Q}=5\frac{150}{300}=2.5>1[/tex]

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\eta_{advertising}=\frac{\Delta Q}{\Delta A}\frac{A}{Q}=15\frac{30}{300}=1.5

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