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Calculate the maximum level of the new equilibrium real gdp

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Reference no: EM132405679

The table below provides data in the spending on final goods, in billions of dollars, by consumers, businesses, and the government in equilibrium in a country with no international trade.

Consumption= 900

Investment spending= 400

Gov spending= 200

Transfer = 60

Marginal propensity to save = 0.4

No imports or exports

1. Calculate the real GDP in this country. Show your work

2. Suppose that the government increases spending from $200 billion to $300 billion. Calculate the maximum change in real GDP. Show your work.

3. Given the change in real GDP in the previous problem, calculate the maximum level of the new equilibrium real GDP. Show your work.

4. Suppose that taxes decrease by $100 billion. Will the maximum change in real GDP be larger than, smaller than, or equal to the change in real GDP identified in problem 3? Explain.

Reference no: EM132405679

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