Please help me find the equilibrium income in this scenario. I know how to find the multiplier but I have no idea how to find the equilibrium income.

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Expert Answers
pohnpei397 eNotes educator| Certified Educator

The way to find the equilibrium income in this question is to know what Y, I, C, and G stand for.  In this situation, Y stands for income.  It is also equal to the gross domestic product (GDP) of the economy.  I stands for investment.  This is the money that businesses spend on equipment.  C stands for consumer spending.  This is money that consumers spend on goods and services for their own use.  Finally, G stands for government spending.  This includes things like the money that governments pay teachers, police officers, and other government workers. All of these things add up (since we are assuming that this is a closed economy) to Y (or the GDP).  In other words, at equilibrium, Y = C + I + G.

To find the equilibrium Y, then, you simply need to determine which row has C, I, and G that add up to Y.  The row in which Y = 500 is the only row where this is true.  This makes 500 the equilibrium income.