Question

Table 10.3

​	Equilibrium Real GDP	C	I	Exports	Imports
Year 1	$9,350	$7,500	$1,350	$1,800	—
Year 2	$11,450	$8,900	—	$2,350	$1,600
Assume that government spending is zero for this economy.

Refer to Table 10.3. Assume that the economy is at equilibrium in both years, and that government spending is zero for this economy. The change in investment spending from year 1 to year 2 is:

Answer 1

Ans:

	Equilibrium Real GDP	C	I	Exports	Imports
Year 1	$9,350	$7,500	$1,350	$1,800	$1,300
Year 2	$11,450	$8,900	$1,800	$2,350	$1,600

Ans: The change in investment spending from year 1 to year 2 is $450

Explanation:

GDP = C + I + G + ( X - M )

In year 1 :

GDP = C + I + G + ( X - M )

9350 = 7500 + 1350 + 0 + ( X - M )

9350 = 8850 + ( X  - M)

( X - M ) = 500

1800 - M = 500

M = 1800 - 500 = $1300

In year 2 :

GDP = C + I + G + ( X - M )

11450 = 8900+ I + 0 + ( 2350 - 1600)

11450 = 8900 + I + 750

11450 = 9650+ I

I = 11450 - 9650 = $1800

The change in investment spending from year 1 to year 2 = $1800 - $1350 = $450