Consumption and investment functions

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Assume that all expenditure is summarized in the following consumption and investment functions:

C = $300 billion + 0.8 YD

I = $200 billion

Use this information to complete this problem:

Identify the equilibrium rate of output (or GDP) .

If full-employment GDP equals $2700 billion ,what kind of Gap will develop (recessionary or Inflationary) ? Explain clearly.

How much is the gap ?

What is the value of the multiplier?

What would happen to equilibrium GDP if the rate of investment increased to $250 from current $200 billion per year?

What will happen to Equilibrium GDP if Govt. takes a stimulus plan by increasing its spending by $50 billion?

Reference no: EM131386571

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