Assume that all expenditure is summarized in the following consumption and investment functions:
C = $300 billion + 0.8 YD
I = $200 billion
Use this information to complete this problem:
Identify the equilibrium rate of output (or GDP) .
If full-employment GDP equals $2700 billion ,what kind of Gap will develop (recessionary or Inflationary) ? Explain clearly.
How much is the gap ?
What is the value of the multiplier?
What would happen to equilibrium GDP if the rate of investment increased to $250 from current $200 billion per year?
What will happen to Equilibrium GDP if Govt. takes a stimulus plan by increasing its spending by $50 billion?