GDP=375

Government spending increases by 50
Taxes increase by 50
MPC=.9
What is the new equilibrium GDP?

To find the new equilibrium GDP, we need to calculate the change in aggregate spending and then determine the multiplier effect. The multiplier effect helps us understand how changes in government spending and taxes can impact the equilibrium GDP.

First, let's calculate the change in aggregate spending:
Change in aggregate spending = Change in government spending + Change in consumption expenditure

Change in government spending = 50
Change in consumption expenditure = MPC * Change in disposable income

To determine the change in disposable income, we need to find the change in taxes. Since taxes have increased by 50, the change in disposable income is equal to the change in taxes:

Change in disposable income = Change in taxes = 50

Now, we can calculate the change in consumption expenditure:
Change in consumption expenditure = MPC * Change in disposable income
= 0.9 * 50
= 45

Next, let's find the multiplier effect. The formula for the multiplier effect is:
Multiplier = 1 / (1 - MPC)

Multiplier = 1 / (1 - 0.9)
= 1 / 0.1
= 10

Finally, we can determine the change in equilibrium GDP by multiplying the change in aggregate spending by the multiplier:
Change in equilibrium GDP = Change in aggregate spending * Multiplier
= (50 + 45) * 10
= 95 * 10
= 950

To find the new equilibrium GDP, we need to add the change in equilibrium GDP to the initial GDP:
New equilibrium GDP = Initial GDP + Change in equilibrium GDP
= 375 + 950
= 1325

Therefore, the new equilibrium GDP is 1325.