Formulating and Rearranging an Equilibrium Equation
An economic model's equilibrium is described by the general relationship: Total Income = Consumption Spending + Investment Spending. Assume that consumption spending has two parts: a fixed amount that does not depend on income, and a variable amount that is a fraction of total income. Investment spending is a fixed amount. First, write a single algebraic equation representing this model's equilibrium, using 'Y' for total income, 'I' for investment, and appropriate symbols for the two parts of consumption. Second, perform the initial algebraic step needed to solve for 'Y' by rearranging your equation to group all terms containing 'Y' on the left-hand side.
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Equilibrium Equation with Y Factored Out
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Rationale for Rearranging the Equilibrium Equation
The equation
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