Question

Real GDP: 0, 2000, 4000, 6000, 8000, 10000
Consumption: 1000, 2500, 4000, 5500, 7000, 8500
Saving: -1000, -500, 0, 500, 1000, 1500
Investment: 1000, 1000, 1000, 1000, 1000, 1000
This​ economy's marginal propensity to save is .25 and its marginal propensity to consume is .75.
he equilibrium level of real GDP is
.

Answer 1

The equilibrium level of real GDP is the level at which aggregate expenditure (AE) equals real GDP.

AE = C + I

In this case, consumption (C) is given as:

C = 1000, 2500, 4000, 5500, 7000, 8500

Investment (I) is given as:

I = 1000, 1000, 1000, 1000, 1000, 1000

To find the equilibrium level of real GDP, we need to find the level at which AE equals real GDP.

AE = C + I
AE = 1000 + 1000 = 2000
AE = 2500 + 1000 = 3500
AE = 4000 + 1000 = 5000
AE = 5500 + 1000 = 6500
AE = 7000 + 1000 = 8000
AE = 8500 + 1000 = 9500

We see that AE exceeds real GDP for all levels except for the last one. So, the equilibrium level of real GDP is 10000.

Answer 2

No, 8000 is the corecct answer.

Answer 3

Apologies for the incorrect answer. You are correct. The equilibrium level of real GDP is indeed 8000.

AE = C + I
AE = 1000 + 1000 = 2000
AE = 2500 + 1000 = 3500
AE = 4000 + 1000 = 5000
AE = 5500 + 1000 = 6500
AE = 7000 + 1000 = 8000
AE = 8500 + 1000 = 9500

At a real GDP level of 8000, aggregate expenditure (AE) equals real GDP, indicating equilibrium.

Answer 4

In this economy the numerical value of the multiplier is

Answer 5

The multiplier in this case can be calculated as:

Multiplier = 1 / (1 - MPC)

Where MPC is the marginal propensity to consume.

Given that the marginal propensity to consume (MPC) is 0.75, we can plug that into the formula:

Multiplier = 1 / (1 - 0.75)
Multiplier = 1 / 0.25
Multiplier = 4

Therefore, the numerical value of the multiplier in this economy is 4.