If autonomous consumption is $5,000,the MPC is 0.7,net taxes are $2,000,investment spending is $4,000,and government purchases equal $2,500,and NX = $0,what is equilibrium GDP?
A) $14,428.6
B) $33,666.7
C) $40,800
D) $43,000
E) $45,000

Question

Quizplus · Accepted Answer

The equilibrium GDP can be calculated using the formula: Y = C + I + G + NX. Consumption (C) is calculated as autonomous consumption plus MPC times disposable income (Y - T). So, C = 5000 + 0.7(Y - 2000). Solving for Y in the equation Y = 5000 + 0.7(Y - 2000) + 4000 + 2500 + 0 gives Y = $33,666.7.

If Autonomous Consumption Is $5,000,the MPC Is 0