Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what will the new equilibrium level of GDP be if government spending increases to 2,500? C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500
A)$32,500
B)$34,000
C)$38,000
D)$42,000

Question

Quizplus · Accepted Answer

The equilibrium level of GDP is given by the formula:

Y = C + I + G + NX

Substituting the given values, we get:

32,000 = 5,000 + (MPC)Y + 1,500 + 2,000 - 500

Simplifying, we get:

MPC = 0.75

Now, if government spending increases to 2,500, then the new equilibrium level of GDP can be found by substituting the new value of G in the equation:

Y = C + I + G + NX

We know that MPC = 0.75, so:

C = 5,000 + 0.75Y

Substituting the given values, we get:

Y = 5,000 + 0.75Y + 1,500 + 2,500 - 500

Simplifying, we get:

Y = 34,000

Therefore, the new equilibrium level of GDP will be $34,000 if government spending increases to 2,500. So, the correct answer is B).

Equations for C,I,G,and NX Are Given Below