1. Assume that all expenditure is summarized in the following consumption and investment functions:
C = $200 billion + 0.8 YD
I = $200 billion
Use this information to complete this problem:
a.Identify the equilibrium rate of output (or GDP) .
b.If full-employment GDP equals $2500 billion ,what kind of Gap will develop (recessionary or Inflationary )
c.How much is the gap ?
d.What is the value of the multiplier?
e.What would happen to equilibrium GDP if the rate of investment increased to $250 from current $200 billion per year?
f. If net exports go up by $20 billion what would happen to Equilibrium GDP?