Consider the following four-sector Keynesian income-expenditure ‘multiplier’ model: AD = Cp + Ip + G + X - M Cp = Co + c(Y-T) Ip = Io G = Go T = To + tY X = Xo M = Mo + mY where Co is autonomous consumption, Io is private investment, G is government expenditure, To is autonomous taxes, X is exports, M is imports, c is the marginal propensity to consume out of disposable income, t is the marginal propensity to tax, m is the marginal propensity to import; and 0 < c < 1, 0 < t < 1 and 0 < m < 1. Assume Co = $400 billion, c = 0.6, Io = $620 b., Go = $660 b., Xo = $480 b., To = $100 b., Mo = $150 b., t = 0.25, and m = 0.2. a.
Calculate the equilibrium level of income (and output) in $ billion.
