The table shows the consumption schedule for a hypothetical economy.All figures are in billions of dollars. Refer to the above table.If taxes were $5, government purchases of goods and services $10, planned investment $6, and net exports zero, equilibrium real GDP would be:
A)$600
B)$610
C)$620
D)$630

Question

The table shows the consumption schedule for a hypothetical economy.All figures are in billions of dollars.  Refer to the above table.If taxes were $5, government purchases of goods and services $10, planned investment $6, and net exports zero, equilibrium real GDP would be:
A)$600 
B)$610 
C)$620 
D)$630

Quizplus · Accepted Answer

Planned aggregate expenditure (PAE) is the sum of consumption, investment, government purchases, and net exports. PAE = C + I + G + NX. In this case, we have C = 200 + 0.8Yd, I = 6, G = 10, and NX = 0. Yd is disposable income and can be calculated as Yd = Y - T, where T is taxes. Since T = 5, Yd = Y - 5. At equilibrium, PAE = Y. Therefore,  PAE = C + I + G + NX = 200 + 0.8(Y - 5) + 6 + 10 + 0 = 216 + 0.8Y - 4 = 0.8Y + 212. To find equilibrium, we need to set PAE equal to Y and solve for Y. Therefore, 0.8Y + 212 = Y, Y = 620. Therefore, the answer is B.

The Table Shows the Consumption Schedule for a Hypothetical Economy