Question

Questions 16 – 19. The data below is for the economy of Summerland.

GDP = DI (Billions)	C + I (Billions)	C + I + XN (Billions)	C + I + XN + G (Billions)
$300	$330
$340	$360
$380	$390
$420	$420
$460	$450
$500	$480
$540	$510
$580	$540
$620	$570

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Question 161 pts

What is the equilibrium GDP for the private closed economy (C+I)?

Group of answer choices

$500 billion

$380 billion

$620 billion

$420 billion

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Question 171 pts

If Net Exports is $20 billion, what is the equilibrium GDP for the private open economy?

Group of answer choices

$420 billion

$500 billion

$380 billion

$620 billion

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Question 181 pts

If Net Exports is $20 billion and Government Spending $30 billion, what is the equilibrium GDP for the open mixed economy?

Group of answer choices

$620 billion

$420 billion

$380 billion

$500 billion

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Question 191 pts

What is the multiplier in this economy?

Group of answer choices

4

2

3

5

Answer 1

Before answering the following questions, we will fill the given table first. Hence, we need the values of XN and G from the questions.

In Question 17, it is given that Net Exports = $20 billion. Hence, XN = $20 billion.

Also, in question 18, it is given that Government Spending is $30 billion. Hence, G=$30 billion.

Hence, we will add XN and G with the preceding columns in the table to get the values of (C+I+XN) and (C+I+XN+G).

GDP=DI($ Billions)	C+I($ Billions)	C+I+XN($ Billions)	C+I+XN+G($ Billions)
300	330	350	380
340	360	380	410
380	390	410	440
420	420	440	470
460	450	470	500
500	480	500	530
540	510	530	560
580	540	560	590
620	570	590	620

(Question 16)

The private closed economy (C+I) is in equilibrum, when GDP = C+I. From the table we can see that when GDP = $420 billions, it is equal to the value of C+I i.e. also $420 billions. Hence, this is the equilibrum GDP of the private closed economy.

Hence, the equilibrum GDP of the private closed economy is $420 billions. (Answer Option D)

(Question 17)

Now, the private open economy (C+I+XN) is in equilibrum when GDP = C+I+XN. Now, from the table we can see that, when GDP = $500 billions, it is equal with the value of C+I+XN i.e. also $500 billions. Hence, this is the equilibrum of the private open economy.

Hence, the equilibrum GDP of the private open economy is $500 billions. (Answer Option B).

(Question 18)

Now, the open mixed economy (C+I+XN+G) is in equilibrum, when GDP = C+I+G+XN. Now, from the table we can see that, when GDP = $620 billions, it is equal with the value of C+I+XN+G i.e. also $620 billions. Hence it is the equilibrum of the open mixed economy.

Hence, the equilibrum GDP of the open mixed economy is $620 billions. (Answer Option A)

(Question 19)

Now, the value of multiplier is

Multiplier = 1/(1-MPC), MPC = Marginal Propensity to Consume.

Now, MPC is defined as the change in Consumption due to change in GDP.

In other words, MPC = ∆C/∆GDP.

Here, we assume that investment (I) is autonomously given. Hence, the change in (C+I) will depict the change in consumption (C). Hence, ∆C = difference of (C+I) between any two consecutive row

or, ∆C = (360-330) = 30

Also, ∆GDP = difference of GDP between any two consecutive row

or, ∆GDP = (340-300) = 40.

Hence, MPC = ∆C/∆GDP = 30/40

or, MPC = 3/4

Hence, Multiplier = 1/(1-MPC)

or, Multiplier = 1/(1-3/4)

or, Multiplier = 4

Hence, the multiplier value is 4 in the economy. (Answer Option A)

Hope the solutions are clear to you my friend.