GDP=520

Government spending decreases by 15
Taxes decrease by 20
Investment increases by 30
Net Exports decrease by 30
MPC=.75
What is the new equilibrium GDP?

To calculate the new equilibrium GDP, we need to consider the changes in government spending, taxes, investment, and net exports, as well as the marginal propensity to consume (MPC).

1. Start with the initial GDP: GDP = 520.

2. Calculate the change in government spending: Government spending decreases by 15. Subtract this amount from the initial GDP.
New GDP = 520 - 15 = 505.

3. Calculate the change in taxes: Taxes decrease by 20. Since taxes are a leakage from the circular flow of income, we need to add this amount to the new GDP.
New GDP = 505 + 20 = 525.

4. Calculate the change in investment: Investment increases by 30. Investment is an injection into the circular flow of income, so we add this amount to the new GDP.
New GDP = 525 + 30 = 555.

5. Calculate the change in net exports: Net exports decrease by 30. Net exports are also a leakage, so we need to add this amount to the new GDP.
New GDP = 555 + 30 = 585.

6. Calculate the multiplier: The multiplier represents the change in equilibrium GDP for each unit change in injection or leakage. It is calculated as 1 / (1 - MPC). Here, the MPC is given as 0.75, so the multiplier is 1 / (1 - 0.75) = 1 / 0.25 = 4.

7. Multiply the change in injections (government spending, taxes, investment, and net exports) by the multiplier and add it to the initial GDP to get the new equilibrium GDP.
New equilibrium GDP = 520 + (585 - 520) * 4
= 520 + 65 * 4
= 520 + 260
= 780.

Therefore, the new equilibrium GDP is 780.