$$\begin{array} { c c c c }
\hline \begin{array} { c }
\text { Real } \
\text { GDP } \
( \$ )
\end{array} & \begin{array} { c }
\text { Consumption } \
( \$ )
\end{array} & \begin{array} { c }
\text { Planned } \
\text { investment } \
( \$ )
\end{array} & \begin{array} { c }
\text { Government } \
\text { purchases } \
( \$ )
\end{array} \
\hline 1,800 & 1,540 & 100 & 200 \
1,900 & 1,620 & 100 & 200 \
2,000 & 1,700 & 100 & 200 \
2,100 & 1,780 & 100 & 200 \
2,200 & 1,860 & 100 & 200 \
2,300 & 1,940 & 100 & 200 \
\hline
\end{array}$$
-Refer to the table in the exhibit.Suppose government purchases increased to $300.By what amount would equilibrium real GDP demanded increase?
A) by $300
B) by $500
C) by $1,200
D) by $1,500

Question

$$\begin{array} { c c c c } 
\hline \begin{array} { c } 
\text { Real } \
\text { GDP } \
( \$ )
\end{array} & \begin{array} { c } 
\text { Consumption } \
( \$ )
\end{array} & \begin{array} { c } 
\text { Planned } \
\text { investment } \
( \$ )
\end{array} & \begin{array} { c } 
\text { Government } \
\text { purchases } \
( \$ )
\end{array} \
\hline 1,800 & 1,540 & 100 & 200 \
1,900 & 1,620 & 100 & 200 \
2,000 & 1,700 & 100 & 200 \
2,100 & 1,780 & 100 & 200 \
2,200 & 1,860 & 100 & 200 \
2,300 & 1,940 & 100 & 200 \
\hline
\end{array}$$
-Refer to the table in the exhibit.Suppose government purchases increased to $300.By what amount would equilibrium real GDP demanded increase?  
A) by $300 
B) by $500 
C) by $1,200 
D) by $1,500

Quizplus · Accepted Answer

The formula for equilibrium GDP is: 
GDP = C + I + G

We know that initially GDP = 1,800 and G = 200. Therefore, 
1,800 = C + I + 200 
C + I = 1,600

If government purchases increase to 300, the new equation becomes: 
GDP = C + I + 300 
We don't know the new value of GDP, but we do know that C and I won't change.

So, we can set up an equation to solve for the new equilibrium GDP: 
1,600 (initial C + I) = GDP - 300

Solving for GDP, we get: 
GDP = 1,900

Therefore, equilibrium real GDP demanded will increase by $100 (from 1,800 to 1,900).

-Refer to the Table in the Exhibit