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Fact 27.5.1
The economy of Beverly Hills has a consumption function of C = 10 + 0.8Y, investment equal to 6, government expenditure equal to 10, exports equal to 10, and an import function of M = 0.1Y.
-Refer to Fact 27.5.1. What is equilibrium real GDP in this economy?
A)36
B)120
C)130
D)360
E)none of the above

Question

Quizplus · Accepted Answer

The equilibrium real GDP is found where aggregate expenditure equals total output (Y). Aggregate expenditure (AE) = C + I + G + X - M. Substituting the given values: AE = (10 + 0.8Y) + 6 + 10 + 10 - 0.1Y = 36 + 0.7Y. Setting AE = Y for equilibrium: 36 + 0.7Y = Y. Solving for Y gives Y = 120.

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