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12 August, 10:32

In a closed economy (no imports or exports), Aggregate Expenditure 'AE' is defined as the sum of Consumption Expenditure 'C', Investment Expenditure 'I' and Government Expenditure 'G' or

AE = C + I + G

In equilibrium, Income 'Y' is equal to 'AE'.

1. If Y = $1265, C = $660, and I = $325, solve for G.

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Answers (1)
  1. 12 August, 13:23
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    G is equal to $280

    Explanation:

    The equation for a closed economy is:

    AE = C + I + G

    Since it is stated that at equilibrium Y = AE, substitute in the equation, giving:

    Y = C + I + G

    Putting in the given figures

    1265 = 660 + 325 + G

    1265 = 985 + G

    1265-985 = G

    $280 = G
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