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Equilibrium expenditure means when AE gets equal to the national income i.e. Y=AE Y=760+0.8Y...

Question:

Equilibrium expenditure means when AE gets equal to the national income i.e.

Y=AE

Y=760+0.8Y

Y=$3800 billion. This is the national income or equilibrium expenditure.

GDP is nothing but the national income or output hence GDP=$3800 billion.

Since no information is given about inflation, we assume that nominal and real GDP are same, hence real GDP also=$3800 billion. How is this the total?

Real GDP

Real GDP implies the total value of goods and services with their prices of goods and services whereas price belongs to the base year. Real GDP is computed on the price levels of the base year. It detects the exact position of an economy.

Answer and Explanation:

The information on inflation is not given, here it is assumed that nominal and real GDP are the same. Hence, Y equals nominal and real GDP.

It is also determined that the economy attains its equilibrium when

{eq}% MathType!Translator!2!1!AMSTeX.tdl!AMSTeX! % MathType!MTEF!2!1!+- % feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn % hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr % 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq-Jc9 % vqaqpepm0xbba9pwe9Q8fs0-yqaqpepae9pg0FirpepeKkFr0xfr-x % fr-xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGceaqabeaacaqGbb % Gaaeyraiaab2dacaqGzbaabaGaae4naiaabAdacaqGWaGaae4kaiaa % bcdacaqGUaGaaeioaiaabMfacaqG9aGaaeywaaqaaiaabEdacaqG2a % Gaaeimaiaab2dacaqGWaGaaeOlaiaabkdacaqGzbaabaGaae4maiaa % bIdacaqGWaGaaeimaiaab2dacaqGzbaaaaa!4AE1! \eqalign{ & {\text{AE = Y}} \cr & {\text{760 + 0}}{\text{.8Y = Y}} \cr & {\text{760 = 0}}{\text{.2Y}} \cr & {\text{3800 = Y}} \cr} % MathType!End!2!1! {/eq}

The information on inflation is not given, here it is assumed that nominal and real GDP are the same. Hence, Y equals nominal and real GDP.

It is also determined that the economy attains its equilibrium when


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How Real GDP per Capita Affects the Standard of Living

from Economics 102: Macroeconomics

Chapter 10 / Lesson 2
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