-In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. If investment increased by $26 to $51 then equilibrium expenditure will
A) increase by $25.
B) decrease by $50.
C) increase by $100.
D) decrease by $100.

Question

-In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. If investment increased by $26 to $51 then equilibrium expenditure will
A) increase by $25. 
B) decrease by $50. 
C) increase by $100. 
D) decrease by $100.

Quizplus · Accepted Answer

The equilibrium expenditure in an open economy is given by the formula: Y = C + I + G + (X - M). An increase in investment (I) by $26 leads to a direct increase in the equilibrium expenditure by the same amount. However, due to the multiplier effect, the actual increase in equilibrium expenditure is more than the initial increase in investment. Assuming a simple multiplier of more than 1, the total increase in equilibrium expenditure would be a multiple of the initial $26 increase in investment. Without specific information on the multiplier value, the exact increase cannot be determined from the options provided. However, the principle that the equilibrium expenditure increases by more than the initial investment increase supports the idea of a significant increase, making an increase by $100 a plausible outcome assuming a multiplier effect.

-In the Above Table, C Is Consumption Expenditure, I Is