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Fact 11.5.2
An economy has a consumption function of C = 15 + 0.7Y , investment equal to 8, government expenditure equal to 12, exports equal to 20, and an import function of M = 0.2Y.
-Refer to Fact 11.5.2.What is equilibrium real GDP for this economy?
A)550
B)55
C)27.5
D)70
E)110

Question

Quizplus · Accepted Answer

To find the equilibrium real GDP, set aggregate demand (AD) equal to aggregate supply (Y). AD = C + I + G + X - M. Substitute the given functions and values: AD = (15 + 0.7Y) + 8 + 12 + 20 - 0.2Y. Simplify to get AD = 55 + 0.5Y. Set AD = Y for equilibrium: 55 + 0.5Y = Y. Solving gives Y = 110.

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