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Consider the simplified national income model:
AD=C + I ...(1)
Where AD is aggregate demand, C is consumption, and I is investment. Consumption is determined by a behavioral equation, which in this problem takes the form
C=2,500 +.65Y...(2)
Y is national income
Y and C are ENDOGENOUS VARIABLE and Investment is EXOGENOUS VARIABLE. Initially we assume
I=1000...(3)
The equilibrium condition requires that aggregate demand equals national income, that is
AD=Y...(4)
By using the matrix (Linear) algebra,
(i) Determine the equilibrium level of the national income (Y) and consumption (C)
(ii) Show the impact of I increased by 300 on Y and C
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