The table given below shows the levels of real GDP () and the corresponding leve

Question

The table given below shows the levels of real GDP () and the corresponding levels of consumption (C), planned investment (D), export (EX), and import (IM) of an open economy. Assume that in this country, the aggregate price level is constant, the interest rate is fixed, and there are no taxes. Table 2 EX $630 $630 $630 IM $100 $1,500 $1,075$820 $3,000 $2,050 $820 $720 $720 $720 $245 $470 $720 $630 $695 920 $4,500 $3,025 $820 S6,000 $4,0005820 $630 17. Refer to Table 2. Calculate the marginal propensity to consume in the economy. a. 0.28 b. 0.35. c. 0.50 d. 0.65 e. 0.72. 18. Refer to Table 2. What is the equilibrium level of real GDP? a. $0 b. $1,500 c. $3,000 d. $4,500 e $6,000 19. Refer to Table 2. The marginal propensity to import for the economy equals: a. 0.10 b. 0.15 c. 0.50 d. 0.75 e. 0.90 0. Refer to Table 2. Assume that there are no taxes. Calculate the value of the spending mu a. 2 b. 2.5 c. 2.85 d. 3 e. 4

Explanation / Answer

17. MPC = change in C/ change in Y = (1075 – 100)/(1500 – 0) = 975/1500 = 0.65. Select D

18. Equilibrium GDP has Y = C + I + G + EX – IM. This occurs when Y = 4500. Note that C + I + G + NX = 3025 + 820 + 720 + 630 – 695 = 4500. Select D.

19. MPM = Change in IM/ change in Y = (245 – 20)/(1500 – 0) = 0.15. Select B

20. Spending multiplier = 1/1-MPC = 1/1-0.65 = 2.85. Select C

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