Question

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals: 1,000. 1,160. 1,280. 1,440.

Answer 1

Answer:

Correct option is D.

$1440

Explanation:

Equilibrium output in this economy equals

Y=C+I+G+NX

C=a+b(Y-T)

a=autonomous consumption=100

b=marginal propensity to consume =0.75

Y=equilibrium GDP

T=taxes=40

I=investment =50

G=government spending =150

NX=net export =20

Y=100+0.75*(Y-40)+50+150+20

Y=320+0.75Y-30

0.25Y=290

Y=290/0.25

Y=1160

the equilibrium GDP is $1160