Consider a small economy that is closed to trade, so its net exports are equal to zero. Suppose that the economy has the following consumption function, where C is consumption, Y is real GDP, I is investment, G is government purchases, and T stands for net taxes:

Consider a small economy that is closed to trade,
C = 40 + 0.5 * (y - t)

Suppose G = $115 billion, I = $50 billion, and T = $10 billion.

Given the consumption function and the fact that for a closed economy total expenditure can be calculated as (y = c + i + g) , the equilibrium output level is equal to _____billion.

Suppose the government purchases are increased by $100 billion. The new equilibrium level of output will be equal to _

Based on the effect of the change in government purchases on equilibrium output, you can tell that this economy's spending multiplier is equal to __

A consumption is depends upon the demand of particular product. If the company wants to earn more profit, they need to meet the consumption.

What is the term equilibrium about?

The term equilibrium means where the demand and supply of particular product meet with each other.

Given Information:-

G = $115 billion,

I = $50 billion, and

T = $10 billion

(1) In equilibrium,

Y = C + I + G

Y = 40 + 0.5(Y - 10) + 50 + 115

Y = 205 + 0.5Y - 5

0.5Y = 200

Y = $400 billion

(2) When G increases by 100,

new level of G = 115 + 100= 215

Therefore,

Y = 40 + 0.5(Y - 10) + 50 + 215

Y = 305 + 0.5Y - 5

0.5Y = 300

Y = $600 billion

(3) Spending multiplier = Increase in Y ÷ Increase in G

= $(600 - 400) Billion ÷ $100 billion

= 200 ÷ 100= 2

Learn more about Equilibrium, refer to the link:

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