Suppose the Multiplier Model Is

question 24

Essay

Suppose the multiplier model is
C = C₀ + cY
I = I₀
M = M₀
X = X₀
Y = C + I + X - M
where C₀ is autonomous consumption,c is the marginal propensity to expend,Y is income,C is consumption,I is investment,X is exports of goods from the United States and M is imports of goods into the U.S.
What is the formula for equilibrium national income (Y_e)?

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Definitions:

Monopolistic Competitive Industries

Industries characterized by many firms offering slightly differentiated products, where each has some degree of market power.

Market Power

The ability of a firm or group of firms to raise and maintain prices above the level that would prevail under competition.

Positive Profits

Earnings that exceed the costs and expenses incurred to generate those earnings.

Price Elastic

Refers to the sensitivity of the quantity demanded of a good to a change in its price; high elasticity indicates that demand varies significantly with price.