Y = C + I + G + X - M gives the national income model.

Where C stands for Consumption.

I stands for investment.

G stands for government spending.

X stands for exports.

M for Important

There are certain endogenous factors that change the equation as follows:

Y = a - b (Y - T0) + I + gY + X - M

Let C = 100 + 0.75YD

T = -80 + 0.2Y

I equals 300.

G is equal to 330

Solving,

Y=1975

C=1345

T=315

I=300

G=330

Let C = 100 + 0.75Y^D

T = -80 + 0.2Y

I = 300.

G= 330

Y=C+I+G

C = 100 + 0.75Y^D

Y^D=Y-T=(Y-(-80 + 0.2Y)=Y+80-0.2Y=0.8Y+80

C = 100 + 0.75(0.8Y+80)

C=100+0.6Y+60=160+0.6Y

Y=160+0.6Y+300+330

Y-0.6Y=790

0.4Y=790

Y*=1975

T=-80+0.2Y=-80+0.2(1975)=315

C=100 + 0.75(1975-315)=100+0.75(1660)=1345

I=300

G=330

Y=C+I+G, Thus Y=1345+300+330=1975

1. What key element is missing from the macroeconomic model of National Income? Add a new endogenous variable to represent that missing element or endogenize one of the exogenous variables to address this issue. Show work.
2. How can the existing endogenous variables be more precisely expressed in a functional form? Consider other exogenous variables that would enhance the equations of the endogenous variables or another functional form besides a linear function.