In a certain economy,the components of planned aggregate expenditure are given by:
C = 60 + 0.6(Y - T)- 1,000r
I = 200 - 1,000r
G = 200
NX = 50
If net taxes equal 100 and the central bank sets the interest rate equal to 0.04 (4%),short-run equilibrium output equals
A) 825.
B) 875.
C) 925.
D) 975.
E) 1,025.

Question

Quizplus · Accepted Answer

To find the short-run equilibrium output, we need to set the components of planned aggregate expenditure (PAE) equal to actual output:
Y = PAE
PAE = C + I + G + NX
Substitute the given values:
PAE = (60 + 0.6(Y - 100) - 1,000(0.04)) + (200 - 1,000(0.04)) + 200 + 50
Simplify and solve for Y:
Y = 925
Therefore, the short-run equilibrium output is 925. The answer is C).

In a Certain Economy,the Components of Planned Aggregate Expenditure Are