Suppose C = 100 + 0.6(Y - T)and T = 200,I = 140,G = 250 and NX = 50 - 0.2Y.An increase in government purchases of goods and services from G = 250 to G = 280 will result in an increase in Y (GDP)of

Question

Quizplus · Accepted Answer

To find the change in GDP resulting from an increase in government purchases, we need to use the expenditure approach equation:

Y = C + I + G + NX

Substituting the given values, we get:

Y = (100 + 0.6(Y - 200)) + 140 + 250 + (50 - 0.2Y)

Simplifying and solving for Y, we get:

Y = 930

Now, let's increase government purchases from G = 250 to G = 280:

Y = (100 + 0.6(Y - 200)) + 140 + 280 + (50 - 0.2Y)

Simplifying and solving for Y, we get:

Y = 980

Therefore, an increase in government purchases from G = 250 to G = 280 will result in an increase in GDP of:

ΔY = Y1 - Y0 = 980 - 930 = 50

Thus, the answer is C.