The equilibrium level of GDP in the above open economy:
A)is $100.
B)is $250.
C)is $350.
D)is $500.

Question

The equilibrium level of GDP in the above open economy:
A)is $100. 
B)is $250. 
C)is $350. 
D)is $500.

Quizplus · Accepted Answer

The equilibrium level of GDP is where the aggregate expenditure (AE) equals output (Y). In this open economy, AE is composed of consumption (C), investment (I), government spending (G), and net exports (NX). From the given data, C = $120, I = $50, G = $80, and NX = exports ($100) - imports ($0) = $100. Therefore, AE = $120 + $50 + $80 + $100 = $350. At the equilibrium level of GDP, Y = AE, so $350 = $100 + MPC(Y - $120) + $50 + $80 + $100 - $100. Solving for Y, we get Y = $350.

The Equilibrium Level of GDP in the Above Open Economy