The equilibrium level of GDP in the above open economy:
A)is $100.
B)is $250.
C)is $350.
D)is $500.

Question

The equilibrium level of GDP in the above open economy:
A)is $100. 
B)is $250. 
C)is $350. 
D)is $500.

Quizplus · Accepted Answer

The equilibrium level of GDP is where the aggregate expenditure (AE) equals the GDP. In an open economy, AE is the sum of consumption, investment, government spending, and net exports (exports minus imports). From the given information, we know that consumption (C) is $200, investment (I) is $100, government spending (G) is $50, and net exports (NX) are $50. Therefore, AE = C + I + G + NX = $200 + $100 + $50 + $50 = $400. The equilibrium level of GDP is where AE equals the GDP. Thus, GDP = $350 (which is option C) is the only level where AE equals GDP.

The Equilibrium Level of GDP in the Above Open Economy