I have a question from my textbook which is:

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y – T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:

and the answer is 260.

I don't understand how they derived this. Could someone please explain?


Planned Expenditure is equal to the income in equilibrium, i.e.:

$Y = C + I + G$ (assuming a closed economy)


$$100+0.6(1000-100) + 100 + G = 1000$$, because $ Y = 1000$

| improve this answer | |

Not the answer you're looking for? Browse other questions tagged or ask your own question.