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24 January, 18:25

Ig=Ig=80 S=-80 + 0.4Y (Advanced analysis) The equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). The equilibrium GDP will be

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  1. 24 January, 18:51
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    Equilibrium Income = 400

    Explanation:

    Economy is at equilibrium where:

    AD (i. e = C + I) = AS (i. e = C + S)

    C + I = C + S

    I = S

    Given I = 80, S = - 80 + 0.4Y

    Putting in formula,

    80 = - 80 + 0.4Y

    80 + 80 = 0.4Y

    160 = 0.4Y

    Y = 160/0.4

    Y = 400
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