The following equations describe consumption, investment, government spending, taxes, and net exports in the country of Economika.
C=100+0.80(Y-T)
I=400
G=550
T=550
X=50
In Economika, equilibrium GDP is equal to $---.
.
To find the equilibrium GDP in Economika, we need to set the total aggregate demand (total spending) equal to the total aggregate supply (total output).
Total aggregate demand (AD) is given by the equation:
AD = C + I + G + X
Substituting in the given values:
AD = (100 + 0.80(Y - T)) + 400 + 550 + 50
AD = 100 + 0.80Y - 0.80T + 400 + 550 + 50
AD = 1100 + 0.80Y - 0.80T
The total aggregate supply (AS) is given by the equation:
AS = Y
Equilibrium GDP occurs when AD = AS:
1100 + 0.80Y - 0.80T = Y
Substituting the given value of T:
1100 + 0.80Y - 0.80(550) = Y
1100 + 0.80Y - 440 = Y
Simplifying the equation:
1100 - 440 = Y - 0.80Y
660 = 0.20Y
Y = 660 / 0.20
Y = 3300
Therefore, the equilibrium GDP in Economika is $3300.
If real GDP in Economika is currently $4,300 which of the following is true?
A.
There will be an unplanned decrease
in inventories, and real GDP will increase
next period.
B.
There will be an unplanned increase
in inventories, and real GDP will decrease
next period.
C.
There will be an unplanned decrease
in inventories, and real GDP will decrease
next period.
D.
There will be an unplanned increase
in inventories, and real GDP will increase
next period.
E.
There will be no unplanned change in inventories, and real GDP will stay the same next period.
To determine whether there will be an unplanned change in inventories and whether real GDP will increase or decrease next period, we need to compare the current level of real GDP with the equilibrium GDP we calculated earlier.
We found that the equilibrium GDP in Economika is $3,300. Since the current level of real GDP is $4,300, it is higher than the equilibrium GDP.
When real GDP exceeds the equilibrium level, it indicates that there is an excess supply in the economy. In order to restore equilibrium, there would be a decrease in inventories and real GDP would decrease next period.
Therefore, the correct answer is C. There will be an unplanned decrease in inventories, and real GDP will decrease next period.
wrong answer
I apologize for the error. Let's reconsider the situation.
If the current real GDP in Economika is $4,300 and the equilibrium GDP is $3,300, there is an excess demand in the economy. This means that the level of spending exceeds the level of output.
In order to restore equilibrium, there will be an unplanned increase in inventories. Firms will see that the goods and services they produce are not being fully purchased, so they will accumulate unsold inventory.
Therefore, the correct answer is B. There will be an unplanned increase in inventories, and real GDP will decrease next period.
To find the equilibrium GDP in Economika, we need to solve for Y in the equation C + I + G + X - T = Y, where C represents consumption, I represents investment, G represents government spending, X represents net exports, and T represents taxes.
Given the following equations:
C = 100 + 0.80(Y - T)
I = 400
G = 550
T = 550
X = 50
Plugging in the values:
C = 100 + 0.80(Y - 550)
I = 400
G = 550
X = 50
T = 550
Substituting these equations into the GDP equation:
100 + 0.80(Y - 550) + 400 + 550 + 50 - 550 = Y
Simplifying the equation:
100 + 0.80Y - 440 + 400 + 550 + 50 - 550 = Y
160 + 0.80Y = Y
Now, let's solve for Y:
0.80Y - Y = -160
Combining like terms:
-0.20Y = -160
Dividing both sides by -0.20:
Y = 800
Therefore, the equilibrium GDP in Economika is $800.
To find the equilibrium GDP in Economika, we need to start by understanding the variables in the given equations:
C = consumption
I = investment
G = government spending
T = taxes
X = net exports
Now, let's substitute the given values into the equation for consumption:
C = 100 + 0.80(Y - T)
C = 100 + 0.80Y - 0.80T
Substituting the values for T and rearranging the equation, we have:
C = 100 + 0.80Y - 0.80(550)
C = 100 + 0.80Y - 440
C = -340 + 0.80Y
Next, let's calculate the total spending (aggregate demand) by summing up the consumption (C), investment (I), government spending (G), and net exports (X):
AD = C + I + G + X
AD = (-340 + 0.80Y) + 400 + 550 + 50
AD = -340 + 0.80Y + 400 + 550 + 50
AD = 0.80Y + 660
To find the equilibrium GDP, we need to set AD equal to GDP (Y):
Y = AD
Y = 0.80Y + 660
Now, let's solve for Y by subtracting 0.80Y from both sides:
Y - 0.80Y = 660
0.20Y = 660
Finally, divide both sides by 0.20 to solve for Y:
Y = 660 / 0.20
Y = 3300
Therefore, the equilibrium GDP in Economika is $3300.