An economy has a break-even point of 3,000. For every additional dollar earned b

Question

An economy has a break-even point of 3,000. For every additional dollar earned by households, they spend 80 cents. Government purchases $596 in goods and services and also spends $742 in transfer payments. Business invests $53 in plant, equipment and inventory. Foreign buyers purchase $60 and buyers from the US purchase $56 from foreign countries. (All spending and income figures are in billions) the unemployment rate is 8.0% and the NRU is estimated to be about 5%. PLEASE ANSWER QUESTIONS BELOW
An economy has a break-even point of 3,000. For every additional dollar earned by households, they spend 80 cents. Government purchases $596 in goods and services and also spends $742 in transfer payments. Business invests $53 in plant, equipment and inventory. Foreign buyers purchase $60 and buyers from the US purchase $56 from foreign countries. (All spending and income figures are in billions) the unemployment rate is 8.0% and the NRU is estimated to be about 5%. PLEASE ANSWER QUESTIONS BELOW
An economy has a break-even point of 3,000. For every additional dollar earned by households, they spend 80 cents. Government purchases $596 in goods and services and also spends $742 in transfer payments. Business invests $53 in plant, equipment and inventory. Foreign buyers purchase $60 and buyers from the US purchase $56 from foreign countries. (All spending and income figures are in billions) the unemployment rate is 8.0% and the NRU is estimated to be about 5%. PLEASE ANSWER QUESTIONS BELOW
An economy has a break-even point of 3,000 For every additional dollar earned by households, they spend 80 cents. Government purchases $596 in goods and services and also spends $742 in transfer payments. Business invests $53 in plant, equipment and inventory. Foreign buyers purchase $60 and buyers from the US purchase $56 from foreign countries. (All spending and income figures are in billions) the unemployment rate is 8.0% and the NRU is estimated to be about 5% 1. By how much will equilibrium change if foreigners increase their expenditures by $4?

Explanation / Answer

3) Equilibrium level of GDP in this economy:

Breakeven GDP = 3,000

G + I + NX = 596 + 53 + 4 = $653

Multiplier = 1 / (1-0.8) = 5

Total impact of injections = $653 * 5 = $3,265

Equilibrium GDP = 3,000 + 3,265 = $6,265

4) Equilibrium level of Aggregate Expenditures

To be in the equilibrium AE must be the same as of GDP, hence at equilibrium level the aggregate expenditures equals $6,625

5) Equilibrium level of Consumption

GDP = C + I + G + NX

We have already solved GDP = 6,265; I + G + NX = 653

Thus C = 6,6265 - 653 - $5,612

1) Change in equilibrium if foreigners increase their expenditures by $4?

A change in an injection will impact the multiplier effect thus an increases in exports would cause firms to increase their output to match the market demand. As in the given case change in aggregate expenditure equals the change in exports (=$4). The multiplier effect is 5 thus $4*5 = $20, thus GDP will increase by $20. Thus $4 exogenous disturbance will result to a rise in GDP by $20. Hence new GDP = $6,625 + $20 = $6,285

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