Homework Answers
Answer
a)
The equilibrium is at
Y=C+I+G+NX=AE
Y=GDP
C=consumption I=investment G=government spending
NX=net export =export -imports=15-10=5 at all level
N+I=GDP-NX=600-5=595
The equilibrium GDP is $600 billion where AE and Y is equal
=======
b)
MPC =change in C+I /change in GDP
= (560-525)/ (550-500)
=0.7
Multiplier =1/ (1-MPC)
=1/ (1-0.7)
=3.33333333
=3.33
=====
c)
New equilibrium GDP =old equilibrium GDP +change in government spending * multiplier
=600+15*3.33333333
=650
The new equilibrium GDP is $650 billion
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