The letters Y, C, I_g, X, and M stand for GDP, consumption, gross investment, exports, and imports respectively.Figures are in billions of dollars.Ca = 25.75(Y - T ) Ig = Ig0 = 50
Xn = Xn0 = 10
G = G0 = 70
T = T0 = 30
Refer to the above information.If the economy's tax schedule was T = 0.2Y rather than T = T₀ = 30, the equilibrium GDP would be:

Question

Quizplus · Accepted Answer

The correct answer is A because the equilibrium GDP is the level of GDP where aggregate expenditure (AE) equals aggregate income (Y). AE is the sum of consumption (Ca), gross investment (Ig), government spending (G), and net exports (Xn). In this case, Ca = 25.75(Y - T), Ig = 50, Xn = 10, and G = 70. Substituting these values into the AE equation, we get:AE = Ca + Ig + G + XnAE = 25.75(Y - T) + 50 + 70 + 10AE = 25.75Y - 25.75T + 130Setting AE equal to Y, we get:Y = 25.75Y - 25.75T + 13074.25Y = 25.75T + 130Y = (25.75T + 130)/74.25If T = 0.2Y, then:Y = (25.75(0.2Y) + 130)/74.25Y = (5.15Y + 130)/74.25Y = 387.3

The Letters Y, C, Ig, X, and M Stand for GDP

The Letters Y, C, I_g, X, and M Stand for GDP