Refer to the below diagram for a private and closed economy aggregate expenditur
ID: 1135086 • Letter: R
Question
Refer to the below diagram for a private and closed economy aggregate expenditure model.
a. The investment in this economy is equal to __________________
b. The equilibrium level of GDP is ____________________
c. MPC in this economy is equal to ______________________
d. The size of the multiplier in this economy is equal to ______________________
e. Suppose the potential GDP in this economy is $900 billion.
(i) The amount of savings at the potential GDP is ________________
(ii) The size of the GDP gap is __________________
(iii) The size of expenditure gap is _____________________
(iv) The type of gap observed in this economy is _________________
Keeping consumption constant, the change in investment required to fill the gap is _________________
$1000 C +I $800 $600 O $400 $200 0 $200 $400 $600 $800 S$1000 GDPExplanation / Answer
A.
Investment in the economy = $100
B.
Equilibrium level of GDP = $600
C.
MPC = (400-300)/(400-200) = 100/200 = .5
D.
Size of the multiplier = 1/(1-MPC) = 1/(1-.5) = 2
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