Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9).
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, compute equilibrium GDP for Macroland.
A)3,000
B)2,950
C)2,625
D)2,525

Question

Table 20-1
Suppose the economy of Macroland is described by the following:
C = 200 + .8DI (DI = disposable income)
I = 300 + .2Y − 50r (Y = GDP)
(r, the interest rate, is measured in percentage points.For example, a 9 percent interest rate is r = 9).
For this economy, assume that the Federal Reserve uses its monetary policy to peg the interest rate at
r = 5
G = 750
T = .25Y
X = 200
M = 150 + .2Y
Hint: DI = Y − T
-From Table 20-1, compute equilibrium GDP for Macroland.
A)3,000 
B)2,950 
C)2,625 
D)2,525

Quizplus · Accepted Answer

To find the equilibrium GDP, set aggregate demand (AD) equal to GDP (Y). AD = C + I + G + (X - M). Substitute the given equations and solve for Y.

Table 20-1 Suppose the Economy of Macroland Is Described by the Following