Real GDP: 0, 2000, 4000, 6000, 8000, 10000
Consumption: 1000, 2500, 4000, 5500, 7000, 8500
Saving: -1000, -500, 0, 500, 1000, 1500
Investment: 1000, 1000, 1000, 1000, 1000, 1000
This economy's marginal propensity to save is .25 and its marginal propensity to consume is .75.
he equilibrium level of real GDP is
.
The equilibrium level of real GDP is the level at which aggregate expenditure (AE) equals real GDP.
AE = C + I
In this case, consumption (C) is given as:
C = 1000, 2500, 4000, 5500, 7000, 8500
Investment (I) is given as:
I = 1000, 1000, 1000, 1000, 1000, 1000
To find the equilibrium level of real GDP, we need to find the level at which AE equals real GDP.
AE = C + I
AE = 1000 + 1000 = 2000
AE = 2500 + 1000 = 3500
AE = 4000 + 1000 = 5000
AE = 5500 + 1000 = 6500
AE = 7000 + 1000 = 8000
AE = 8500 + 1000 = 9500
We see that AE exceeds real GDP for all levels except for the last one. So, the equilibrium level of real GDP is 10000.
No, 8000 is the corecct answer.
Apologies for the incorrect answer. You are correct. The equilibrium level of real GDP is indeed 8000.
AE = C + I
AE = 1000 + 1000 = 2000
AE = 2500 + 1000 = 3500
AE = 4000 + 1000 = 5000
AE = 5500 + 1000 = 6500
AE = 7000 + 1000 = 8000
AE = 8500 + 1000 = 9500
At a real GDP level of 8000, aggregate expenditure (AE) equals real GDP, indicating equilibrium.
In this economy the numerical value of the multiplier is
The multiplier in this case can be calculated as:
Multiplier = 1 / (1 - MPC)
Where MPC is the marginal propensity to consume.
Given that the marginal propensity to consume (MPC) is 0.75, we can plug that into the formula:
Multiplier = 1 / (1 - 0.75)
Multiplier = 1 / 0.25
Multiplier = 4
Therefore, the numerical value of the multiplier in this economy is 4.
To find the equilibrium level of real GDP, we need to determine the level at which aggregate expenditure (AE) is equal to real GDP.
Aggregate expenditure (AE) consists of consumption (C) and investment (I). The consumption function is given by the equation C = a + bY, where a is autonomous consumption and b is the marginal propensity to consume (MPC). The investment function is given by the equation I = I0, where I0 is autonomous investment.
Given the marginal propensity to save (MPS), we know that the marginal propensity to consume (MPC) is equal to 1 - MPS. Therefore, the marginal propensity to consume (MPC) is 1 - 0.25 = 0.75.
First, let's calculate the consumption level for each level of real GDP:
C = a + bY
The autonomous consumption (a) is 1000 and the marginal propensity to consume (MPC) (b) is 0.75.
For real GDP 0: C = 1000 + 0.75(0) = 1000
For real GDP 2000: C = 1000 + 0.75(2000) = 2500
For real GDP 4000: C = 1000 + 0.75(4000) = 4000
For real GDP 6000: C = 1000 + 0.75(6000) = 5500
For real GDP 8000: C = 1000 + 0.75(8000) = 7000
For real GDP 10000: C = 1000 + 0.75(10000) = 8500
Next, let's calculate the aggregate expenditure (AE) for each level of real GDP:
AE = C + I
The investment (I) is given as 1000 for all levels of real GDP.
For real GDP 0: AE = 1000 + 1000 = 2000
For real GDP 2000: AE = 2500 + 1000 = 3500
For real GDP 4000: AE = 4000 + 1000 = 5000
For real GDP 6000: AE = 5500 + 1000 = 6500
For real GDP 8000: AE = 7000 + 1000 = 8000
For real GDP 10000: AE = 8500 + 1000 = 9500
Now, let's compare AE to real GDP for each level and find the equilibrium level of real GDP where AE = GDP:
For real GDP 0: AE ≠ 0
For real GDP 2000: AE ≠ 2000
For real GDP 4000: AE ≠ 4000
For real GDP 6000: AE = 6000
For real GDP 8000: AE ≠ 8000
For real GDP 10000: AE ≠ 10000
The equilibrium level of real GDP is 6000.
To find the equilibrium level of real GDP, we can use the equation for aggregate demand:
AD = C + I + G + NX
Where:
AD = Aggregate demand
C = Consumption
I = Investment
G = Government spending
NX = Net exports
In this case, there is no information given about government spending (G) or net exports (NX), so we can assume that they are not included in the calculation. Therefore, the equation becomes:
AD = C + I
To find the equilibrium level of real GDP, we need to find the point at which aggregate demand (AD) is equal to real GDP. We can find this point by setting AD equal to real GDP (Y):
Y = C + I
Given the consumption function:
C = a + bY
Where:
a = Autonomous consumption (consumption when income is zero)
b = Marginal propensity to consume (the change in consumption for every incremental change in income)
In this case, the marginal propensity to consume (MPC) is given as 0.75, which means that for every incremental change in income, consumption increases by 0.75. The equation for consumption becomes:
C = 1000 + 0.75Y
Given the saving function:
S = -a + (1 - b)Y
Where:
S = Saving
a = Autonomous saving (saving when income is zero)
b = Marginal propensity to consume (the change in saving for every incremental change in income)
In this case, the marginal propensity to save (MPS) is given as 0.25, which means that for every incremental change in income, saving increases by 0.25. The equation for saving becomes:
S = -1000 + 0.25Y
At equilibrium, saving (S) is equal to investment (I). So we can set S equal to I and solve for Y:
-1000 + 0.25Y = 1000
0.25Y = 2000
Y = 2000 / 0.25
Y = 8000
Therefore, the equilibrium level of real GDP is 8000.