Find the equilibrium level of real gdp for smallville

Reference no: EM13199609

Consider the following model of a closed economy (Smallville):

MPC = 0.8 - 0.01Y (marginal propensity to consume)
C = MPC x YD (consumption function)
YD = (Y - T) (disposable income)
I = 500 (investment spending)
G = 1,500 (government spending)
Y = AD (equilibrium condition)
T = 1,200 (taxes - non-income)

Find the equilibrium level of real GDP for Smallville. Note: you will have to solve a quadratic equation - and GDP cannot be negative, for obvious reasons.

Reference no: EM13199609

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