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
.

5 answers

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.
No, 8000 is the corecct answer.
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.
In this economy the numerical value of the multiplier is
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.
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