Use the following Situation to answer the question : situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information in Situation 20-1,the equilibrium level of aggregate output is
A)$900.
B)$8,000.
C)$9,000.
D)$10,000.

Question

Quizplus · Accepted Answer

The equilibrium level of output is determined where aggregate output (Y) equals aggregate expenditure (Y = AE). 
Aggregate expenditures equal autonomous consumption plus planned investment plus the expenditure induced by the marginal propensity to consume times the level of income.
Hence, 
Y = AE
Y = Autonomous consumption + Planned investment + MPC*(Y)
Y = 400+ 500+ 0.9*(Y)
Y-0.9Y = 400 + 500
0.1Y = 900
Y = 9000
Therefore, the equilibrium level of aggregate output is $9,000.

Use the Following Situation to Answer the Question : Situation