A nation-wide study reveals that over one year households use 70% of their after-tax income for the purpose of consumption. It also finds that over that year tax is 20% of the aggregate level of income, the aggregate investment level is $50 million, government expenditure is $10 million, the aggregate export level is $40 million and the aggregate import level is $30 million.

Use the simple circular flow model to calculate equilibrium level of income.

Y = C + I + G + NX = c x (Y - tY) + I + G + NX so Y = (I + G + NX)/(1 - c + ct)

Show how the equilibrium level of income will be affected if the aggregate export level increases by $10 million.

Does the level of income change by a smaller, larger or the same amount as the change in the level of aggregate exports? Explain your answer.