Question

equations for c, i, g, and nx are given below. if the equilibrium level of gdp is $32,000, what will the new equilibrium level of gdp be if government spending increases to 2,500?

Answer 1

To find the equilibrium level of GDP, set aggregate expenditure equal to national income using the given equations. To calculate the new equilibrium level when government spending increases, substitute the new value of government spending into the equations.

Step-by-step explanation:

The equilibrium level of GDP can be found by setting the total aggregate expenditure (AE) equal to the national income (Y). In this case, the equations for AE are:

1. AE = C + I + G + NX
2. C = 400 + 0.85(Y - T)
3. I = 300
4. G = 200
5. NX = X - M = 500 - 0.1(Y - T)

Using these equations, we can solve for Y (national income) to find the equilibrium level of output for this economy.

To calculate the new equilibrium level of GDP when government spending increases to $2,500, we can plug the new value of G into the equations and solve for Y.