Question

Assume that the MPS in an economy is equal to

0.20

The multiplier must be equal to

5.00.

You have established that the multiplier is

5.00.

Now assume that autonomous real consumption is

$3 trillion. There is no other autonomous spending presently taking place in the economy. At what level is consumption equal to real GDP?

You have established that the multiplier is

5.00

and that autonomous real consumption is

$3 trillion. There is an autonomous investment of

$22

trillion and autonomous net exports of

$5

trillion. At what level are expenditures equal to real GDP?

Answer 1

part one

ANswer
multiplier =1/(1-MPC)
=1/(1-0.2)
=5
-----------
part two

answer
the consumption function is the form of
C=a+bY
a=autonomus consumption
b=MPC
Y=GDP
C=consumption
using values
C=3+0.2Y
using C=Y
Y=3+0.2Y
0.8Y=3
Y=3.75 trillion
the consumption and GDP is equal at 3.75 trillion
-------------

part third

I=$22 trillion
NX=$5 trillion

Y=C+I+NX
using values
Y=3+0.2Y+22+5
0.8Y=30
Y=37.5 trillion
the expenditure is equal to GDP is $37.5 trillion