Aggregate Expenditure Equation and Income Equilibrium
What is the equation for aggregate expenditure and income equilibrium?
Can you solve for income (y) in the given equation?
Aggregate Expenditure Equation and Income Equilibrium
The equation for aggregate expenditure is: ae = $3600 – 0.8y. In equilibrium, income 'y' equals aggregate expenditure 'ae'. So, the equation can be rewritten as: y = $3600 – 0.8y. To solve for 'y' in the equation y = $3600 - 0.8y, you can isolate 'y' on one side of the equation.
Understanding Aggregate Expenditure Equation and Income Equilibrium
The aggregate expenditure equation provides a way to calculate the total spending in an economy. In this case, the equation is ae = $3600 – 0.8y. This means that the total spending (ae) is equal to $3600 minus 80% of the income level (y).
To find the income equilibrium, we set income (y) equal to aggregate expenditure (ae): y = ae. By substituting the values, we get y = $3600 – 0.8y. This equation helps us determine the income level at which spending equals income.
To solve for 'y' in the equation y = $3600 - 0.8y, we follow these steps:
Step 1: Start with the original equation: y = $3600 - 0.8y Step 2: Add 0.8y to both sides of the equation to move the y term to one side: y + 0.8y = $3600 Step 3: Combine the y terms on the left side: 1.8y = $3600 Step 4: Divide both sides by 1.8 to isolate 'y': (1.8y) / 1.8 = $3600 / 1.8 Step 5: Simplify the right side: y = $2000Therefore, in equilibrium, when income (y) equals aggregate expenditure (ae), the income level is $2000.