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Compute the GDP

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Compute the GDP

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Solution Summary

An increase in the marginal propensity is noted.

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1. To calculate the GDP recall that the formula is

Y = C + I + G + X - M

In this case we have values for all components except I (gross investment) given in the table. To calculate gross investment use the formula

Gross Investment - Depreciation = Net Investment

which gives

Gross Investment = Net Investment + Depreciation = 1.4 + 0.2 = 1.6

Plug all variables into the GDP equation:

Y = 3 + 1.6 + 2 + 0.5 - 0.3 = 6.8

Thus the GDP is 6.8 trillion.

2. The unemployment rate is defined to be

Unemployment Rate = (Total Unemployed / Total Labor ...

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