Use the information in the table to answer the following questions. All numbers are in billions....

Question:

Use the information in the table to answer the following questions. All numbers are in billions.

Real GDP (Y) Consumption (C) Planned Investment (I) Government Purchases (G) Net Exports (NX)
$8000 $6500 $500 $2000 -$500
$9000 $7250 $500 $2000 -$500
$10000 $8000 $500 $2000 -$500
$11000 $8750 $500 $2000 -$500
$12000 $9500 $500 $2000 -$500

(a) What is the equilibrium level of GDP?

(b) What is the MPC?

(c) Suppose that net exports increase by $400 billion. Using the multiplier formula, determine the new level of GDP.

(d) A $400 billion increase in net exports leads to a change in the spending of {eq}$________ {/eq} billion, so the new level of GDP will be {eq}$________ {/eq} billion.

Spending Multiplier:

In the Keynesian Cross model, the simply spending multiplier is a number that captures the effect of autonomous spending on equilibrium income. In the model, autonomous spending can increase due to an increase in autonomous consumption, investment, government spending or net exports.

Answer and Explanation: 1

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a) Equilibrium level of GDP is 10,000 billions.

The economy is in equilibrium when aggregate planned expenditure is equal to real GDP. Aggregate...

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The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples

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Chapter 5 / Lesson 9
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The multiplier effect is when the money spent multiplies as it filters through the economy. Explore the multiplier effect, the marginal propensity to consume, the marginal propensity to save, and find out how to use the simple spending multiplier.


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