$$\begin{array} { | c | c | c | c | c | c | c | }
\hline \text { Price Level } & C & I _ { g } & G & X & M & \text { Real GDP } \
\hline 128 & \$ 18 & \$ 2 & \$ 3 & \$ 1 & \$ 5 & \
\hline 125 & 20 & 4 & 3 & 2 & 4 & \
\hline 122 & 22 & 6 & 3 & 3 & 3 & \
\hline 119 & 24 & 8 & 3 & 4 & 2 & \
\hline 116 & 26 & 10 & 3 & 5 & 1 & \
\hline
\end{array}$$ In the accompanying table for a particular country, C is consumption expenditures, $$I _ { g }$$ is gross
Investment expenditures, G is government expenditures, X is exports, and M is imports. All ?gures
Are in billions of dollars. If equilibrium real GDP is $31 billion, the equilibrium price level will be
A) 128.
B) 125.
C) 122.
D) 119.

Question

$$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \text { Price Level } & C & I _ { g } & G & X & M & \text { Real GDP } \
\hline 128 & \$ 18 & \$ 2 & \$ 3 & \$ 1 & \$ 5 & \
\hline 125 & 20 & 4 & 3 & 2 & 4 & \
\hline 122 & 22 & 6 & 3 & 3 & 3 & \
\hline 119 & 24 & 8 & 3 & 4 & 2 & \
\hline 116 & 26 & 10 & 3 & 5 & 1 & \
\hline
\end{array}$$ In the accompanying table for a particular country, C is consumption expenditures, $$I _ { g }$$ is gross
Investment expenditures, G is government expenditures, X is exports, and M is imports. All ?gures
Are in billions of dollars. If equilibrium real GDP is $31 billion, the equilibrium price level will be
A) 128.
B) 125.
C) 122.
D) 119.

Quizplus · Accepted Answer

To find the equilibrium price level, we need to determine the level at which real GDP equals the aggregate expenditure (AE) function. The AE function is AE = C + I + G + X – M, where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

We can calculate AE for each price level in the table:

AE at a price level of 128: 
= $18 + $2 + $3 + $1 – $5 
= $19 billion

AE at a price level of 125: 
= $20 + $4 + $3 + $2 – $4 
= $25 billion

AE at a price level of 122: 
= $22 + $6 + $3 + $3 – $3 
= $31 billion

AE at a price level of 119: 
= $24 + $8 + $3 + $4 – $2 
= $37 billion

AE at a price level of 116: 
= $26 + $10 + $3 + $5 – $1 
= $43 billion

Since the equilibrium real GDP is $31 billion, we can see that the equilibrium price level is 122, as this is the only price level with an AE of $31 billion. Therefore, the answer is C) 122.

In the Accompanying Table for a Particular Country, C Is