Question

Use the following data to calculate the values of equilibrium output and the investment spending​ multiplier:   Upper C equals MPC times Upper Y equals 0.8 times Upper Y nbsp   Upper I overbar equals​$2.3 trillion   Upper G overbar equals​$1.9 trillion                       NX overbar equalsminus​$0.4 trillion Equilibrium output is 19 19 trillion. ​(Enter your response rounded to one decimal place.​) The investment spending multiplier is

Answer 1

C = MPC*Y

Since, MPC = 0.8

=> C = 0.8Y

I = $2.3trillion

G = $1.9 trillion

NX = -$0.4 trillion

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At equilibrium, Y = C + I + G + NX

=> Y = 0.8 *Y + 2.3 + 1.9 + (-0.4)

=> Y = 0.8 * Y + 3.8

=> (Y - 0.8Y) = 3.8

=> 0.2Y = 3.8

=> Y = (3.8 /0.2)

=> Y = 19.

Thus, equilibrium output is $19 trillion.

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Investment spending multiplier = 1 / (1 - MPC)

=> Investment spending multiplier = 1/ (1-0.8)

=> Investment spending multiplier = 5