gov. increases expenditures by $100 billon and marginal propensity to consume is 0.50 by how much will equilibrium gdp charge
To find the change in equilibrium GDP, we need to consider the multiplier effect. The multiplier is a number that represents the total increase in spending in the economy resulting from an initial increase in government expenditures. The formula for the multiplier is:
Multiplier = 1 / (1 - Marginal Propensity to Consume)
In this case, the marginal propensity to consume is given as 0.50, so the multiplier is:
Multiplier = 1 / (1 - 0.50) = 1 / 0.50 = 2
Now, to find the change in equilibrium GDP, we multiply the initial increase in government expenditures by the multiplier:
Change in GDP = Multiplier x Change in Government Expenditures
Change in GDP = 2 x $100 billion
Change in GDP = $200 billion
Therefore, the equilibrium GDP will increase by $200 billion.