Question

- a) Calculate AE given the information below and completely fill in the table.

Taxes: $10 at each level of income

Investments: $15

Government Spending: $25

Total Income (AO)	Taxes	Disposable Income	C	S	I	G	AE
100			125
105			135
120			145
140			150
150			155
170			160
180			170
190			180
200			185
240			200
280			215
310			230

- b) Where is equilibrium in this economy based on the table? State the level, don’t just point to it or highlight it. (1 mark)

- c) Using the injections-withdrawals approach, demonstrate that the point you chose in part 2 is the equilibrium.At this point withdrawals = injections.

Injections-Withdrawals Approach

Item (Name the item here)	Injections (place the $ amount in this column)	Withdrawals(place the $ amount in this column)
Totals

Answer 1

(a)

Total Income	Taxes	Disposable income	C	S	I	G	AE
100	10	90	125	-35	15	25	165
105	10	95	135	-40	15	25	175
120	10	110	145	-35	15	25	185
140	10	130	150	-20	15	25	190
150	10	140	155	-15	15	25	195
170	10	160	160	0	15	25	200
180	10	170	170	0	15	25	210
190	10	180	180	0	15	25	220
200	10	190	185	5	15	25	225
240	10	230	200	30	15	25	240
280	10	270	215	55	15	25	255
310	10	300	230	70	15	25	270

Taxes is $10 at each level of income

Disposable icome = Total income - taxes

Saving = total income - taxes - consumption (C)

Investment (I) is $15 at each level of income

Government spending (G) is $25 at each level of income

(b) At equilibrium, total income = AE

Thus, the equilibrium level of income is 240.

(c) Withdrawl = Saving + Taxes + Imports

At income level of 240, saving is 30, taxes is 10 and import is 0

Withdrawl = 30 + 10

Withdrawl = 40.

-------

Injections = Investment + Government spending + export

At income level of 240, investment is 15, government spending is 25 and export is 0

=> Injection = 15 + 25 + 0

=> Injection = 40.

Hence, at income level of 240, Injections = Withdrawl.