C = $750 + 0.75(1 - 0.4)y i = $600 g = $500 nx = -$50
Use the above data to:
a. Calculate the equilibrium level of GDP
b. Calculate the value of the expenditure multiplier
c. Find the change in the initial equilibrium GDP if autonomous investment increases by $75.
d. Find the change in the initial equilibrium GDP if autonomous government purchases decreases by $50.
e. Find the change in the initial equilibrium GDP if autonomous net exports increase by $10.
a. Y= $750 + 0.75(1 - 0.4)Y + $600 + $500 + (-$50); Y = 0.3Y + $1,800; 0.7Y = $1,800.; Y = $2571.43.
b. Multiplier = 1 / [1 - (1 - 0.4)0.75]; Multiplier = 1 / 0.7 = 1.43.
c. Change in GDP = $75 × 1.43 = $107.25.
d. Change in GDP = -$50 × 1.43 = -$71.50.
e. Change in GDP = $10 × 1.43 = $14.30.
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