Answer the next 4 questions on the basis of the following data. All figures are

Question

Answer the next 4 questions on the basis of the following data. All figures are in billions of dollars. If investment is $4 billion, net exports are zero and there is no government, the equilibrium level of GDP will be: What is the value of multiplier for this economy? MPC? If investment is $10 billion, net exports are(-2)billion, and there is no government, the equilibrium level of GDP will be: Investment is $4 billion, net exports are $4 and government collects a lump-sum tax of $10 billion and spends $10 billion. Assume all taxes are personal taxes and that government spending does not entail shifts in the consumption and investment schedules. The equilibrium GDP will be: Prove all your answers with calculations!

Explanation / Answer

Y =C + I
as I=4
for C=40 and GDP =44 is the equilibrium
MPC =C/Y =6/10 =0.6

multiplier =1/(1-mpc) =2.5

Y=C+4+4+10+10

Y=C +28

this is satisfied for Y=120 and C=92

hence equilibrium GDP = Y =120

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