Posted: May 24th, 2016

What is the equilibrium level of real GDP?

Using the following table, answer the following questions. The numbers in the table are in billions of dollars.
Real GDP Consumption Planned Investment
Government Purchases
Net Exports
500 400 100 150 -50 600 450 100 150 -50 700 500 100 150 -50 800 550 100 150 -50
4a. What is the equilibrium level of real GDP?
4b. What is the MPC?
4c. If investment spending declines by 50, what will happen to equilibrium GDP?
5. Suppose the current equilibrium GDP for a country is $14.5 trillion and potential GDP is $14.3 trillion. Will decreasing government purchases by $200 billion or raising taxes by $200 billion restore the economy to potential GDP? Briefly explain why.

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