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Calculate the real gdp in country

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The table below provides data on 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

The marginal propensity to save is equal to 0.4 and there arae no exports or imports.

(a) Calculate the real GDP in this country. Show your work.

(b) Calculate the marginal propensity to consume. Show your work.

(c) Suppose that the government increases spending from $200 billion to $300 billion.

(i) Calculate the maximum change in real GDP. Show your work.

(ii) Given the change in real GDP in part (c)(i), calculate the maximum level of the new equilibrium real GDP. Show your work.

(d) 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 part (c)(i) ? Explain.

Reference no: EM132489494

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