180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Real GDP Question

Question

180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Real GDP Question 34 Consider the above graph that shows the AD and LRAS functions for an economy. The economy is in the state of long-run equilibrium with C 800, 100, and G 100. There are no trades with foreign countries and so EX-IM-0. Marginal propensity to consume is MPC-0.80. The government increases its purchases to G 200 units through deficit financing. What will be the private spending in the long run as a result of this policy? A. C+600 B. C+700 C. C+1=800 D. C+1 900 E. None of the above

Explanation / Answer

Since real GDP that is Y remains fixed at 1000 and we know the national income identity Y=C+I+G+EX-IM. Here EX-IM=0, Now when G=200, So C+I=Y-G=1000-200=800

Thus the answer is option (c) C+I=800

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.