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Equilibrium GDP

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Consider an economy in which investment (I) equals 400, government purchases (G) equals 800, taxes (T) equal 600, exports (X) equals 200, and imports (M) equal 250. The consumption function is:

C = 100 + 0.8(Y-T)

What is equilibrium GDP? What will equilibrium GDP equal if government expenditures increase 200? What will equilibrium GDP equal if taxes decrease 200? Why are the results different?

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Solution Preview

Consider an economy in which investment (I) equals 400, government purchases (G) equals 800, taxes (T) equal 600, exports (X) equals 200, and imports (M) equal 250. The consumption function is:

C = 100 + 0.8(Y-T)

What is equilibrium GDP?

Y = C + I + G + (X-M)
Or Y = ...

Solution Summary

The expert calculates equilibrium GDP.

$2.19
Similar Posting

GDP/Equilibrium and MPC questions

GDP/Equilibrium and MPC questions:

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C = 250 Billion +. 80GDP

Please use equation above for following questions:

1. If the planned investment is $200 billion, the equilibrium level of GDP is:

2. If the equilibrium is $2000 billion, autonomous investment is:
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C = $100 + .80 (GDP); I = $20

Please use equation above to answer questions below.

3. Private sector equilibrium occurs at GDP of:

4. The equation for private sector equilibrium can be expressed as:

5. What is the value of the marginal propensity to consume?

6. What is the value of the multiplier

7. If planned investment increases by $10, by how much will equilibrium GDP increase?

8. The new equilibrium GDP after the $10 increase in investment is:

9. Assume government decided to spend $30. Equilibrium GDP at investment of $30 and government spending of $30 is:
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