Reference no: EM132401084
For problems 1 through 5, use the following information:
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.
Aggregate Variables Value (in billions of dollars) in the base year
Consumption spending $900
Investment spending $400
Government spending $200
Transfer payments $60
1. Calculate the real GDP in this country. Show your work.
2. Calculate the marginal propensity to consume. Show your work.
3. Suppose that the government increases spending from $200 billion to $300 billion. Calculate the maximum change in real GDP. Show your work.
4. Given the change in real GDP in the previous problem, calculate the maximum level of the new equilibrium real GDP. Show your work.
5. 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.
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