$$\begin{array}{l}
\begin{array} { | c | c | }
\hline \text { Gross Domestic Product } & \text { Consumption } \
\hline \$ 100 & \$ 120 \
\hline 200 & 180 \
\hline 300 & 240 \
\hline 400 & 300 \
\hline 500 & 360 \
\hline
\end{array}\\
\begin{array} { | c | c | }
\hline \text { Expected Rate of Return } & \text { Amount of Investment } \
\hline 25 \% & \$ 0 \
\hline 20 & 20 \
\hline 15 & 40 \
\hline 10 & 60 \
\hline 5 & 80 \
\hline
\end{array}
\end{array}$$ Refer to the tables of information for a private closed economy. If the real interest rate is 10 percent, the equilibrium GDP will be
A) $100.
B) $200.
C) $300.
D) $400.

Question

$$\begin{array}{l}
\begin{array} { | c | c | } 
\hline \text { Gross Domestic Product } & \text { Consumption } \
\hline \$ 100 & \$ 120 \
\hline 200 & 180 \
\hline 300 & 240 \
\hline 400 & 300 \
\hline 500 & 360 \
\hline
\end{array}\\
\begin{array} { | c | c | } 
\hline \text { Expected Rate of Return } & \text { Amount of Investment } \
\hline 25 \% & \$ 0 \
\hline 20 & 20 \
\hline 15 & 40 \
\hline 10 & 60 \
\hline 5 & 80 \
\hline
\end{array}
\end{array}$$ Refer to the tables of information for a private closed economy. If the real interest rate is 10 percent, the equilibrium GDP will be
A) $100.
B) $200.
C) $300.
D) $400.

Quizplus · Accepted Answer

At a real interest rate of 10 percent, investment spending is $30, and saving is $30. The equilibrium GDP can be found by realizing that GDP = C + I + G, and since there is neither government spending nor exports in this closed economy, GDP = C + I. Consumption is equal to the autonomous consumption plus the marginal propensity to consume times GDP, so C = $50 + 0.75GDP. Equilibrium GDP can be found by setting GDP equal to C + I: GDP = $50 + 0.75GDP + $30. Solving for GDP yields: GDP = $300.

Refer to the Tables of Information for a Private Closed