Equilibrium GDP is equal to
A)autonomous expenditure times the marginal propensity to consume.
B)autonomous expenditure times the marginal propensity to save.
C)autonomous expenditure times the multiplier.
D)autonomous expenditure.
E)autonomous expenditure times the saves rate.

Question

Quizplus · Accepted Answer

Equilibrium GDP is the level of real GDP at which aggregate demand (AD) equals aggregate supply (AS). At equilibrium, there is no unplanned inventory accumulation or depletion, and all goods produced are sold. Autonomous expenditure, such as government spending, investment spending, and exports, combined with the multiplier effect, determine the equilibrium level of GDP. The multiplier is the change in GDP resulting from a change in autonomous expenditure, and it equals 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, equilibrium GDP is equal to autonomous expenditure times the multiplier, or Y = AE x (1/(1-MPC)).

Equilibrium GDP Is Equal to