Refer to the above information.If the real interest rate is 20 percent, the equilibrium level of GDP will be:
A)$100
B)$200
C)$300
D)$400

Question

Refer to the above information.If the real interest rate is 20 percent, the equilibrium level of GDP will be:
A)$100 
B)$200 
C)$300 
D)$400

Quizplus · Accepted Answer

The equilibrium level of GDP is where the planned aggregate expenditure (PAE) equals the actual output. From the given information, we can calculate the PAE formula as:
PAE = 200 + 0.8(Y-100)
Plugging in Y=200 and solving for PAE, we get:
PAE = 200 + 0.8(200-100) = 280
At equilibrium, PAE = Y, so we have:
280 = Y
Therefore, the equilibrium level of GDP is $200.

Refer to the Above Information