Homework Answers
In equilibrium level of output Aggregate Demand (AD) =Aggregate Supply(AS)
Y is Income
Consumption function (C)=100+0.95Y
I (Planned Investment)=200
Y= (Consumption +Investment) or (Consumption + Saving)
Y=100+0.95Y+200
Y=300+0.95Y
Y-0.95Y=300
0.05Y=300
Y=300/0.05 =300*100/5=6,000
Ye=$6,000
Verification:
AS=Y =6000
AD=C+I
C=100+0.95Y=100+0.95×6,000
C=100+5,700=5,800
I=200
AD=C+I=5,800+200=6,000
Hence proved AS=AD and equilibrium level of output is 6000
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