Suppose C = 100 + 0.6(Y - T)and T = 200,I = 150,G = 250 and NX = 50.Then,suppose government purchases are reduced from G = 250 to G = 240,and at the same time net exports increase from NX = 50 to NX = 70.The net result is an increase in Y (GDP)of

Question

Quizplus · Accepted Answer

Plug in the given values in the equation:
Y = C + I + G + NX
Y = (100 + 0.6(Y - 200)) + 150 + 250 + 50
Y = 500 + 0.6Y - 120
0.4Y = 380
Y = 950

Now, when G is reduced by 10 and NX is increased by 20, the equation becomes:
Y = (100 + 0.6(Y - 200)) + 150 + 240 + 70
Y = 560 + 0.6Y
0.4Y = 560
Y = 1400

Therefore, the increase in Y (GDP) is:
1400 - 950 = 450, which is closest to option C) 45.