Question

If the equilibrium GDP of a country is $600 billion and the

inflationary gap is $30 billion, what is the actual level of GDP if
the MPC is 0.75?
a $480 billion
b $570 billion
c $630 billion"

Answer 1

The actual level of GDP in an economy with an equilibrium GDP of $600 billion and an inflationary gap of $30 billion, with an MPC of 0.75, is $630 billion.

Step-by-step explanation:

If the equilibrium GDP of a country is $600 billion and there is an inflationary gap of $30 billion, this means that the actual GDP is running $30 billion above the potential GDP, indicating an overheating economy that is producing beyond its sustainable limit. When the marginal propensity to consume (MPC) is 0.75, this suggests that for every additional dollar earned, consumers will spend 75 cents.

In this scenario, if the equilibrium GDP is $600 billion and the economy is currently experiencing a $30 billion inflationary gap, then the actual GDP would be the sum of the equilibrium GDP plus the inflationary gap, which equates to $600 billion + $30 billion = $630 billion.

Therefore, the actual level of GDP is $630 billion.

Answer 2

The actual GDP, given an equilibrium GDP of $600 billion and an inflationary gap of $30 billion, is $630 billion. The MPC is not required for this calculation.

Step-by-step explanation:

The question asks us to calculate the actual level of GDP given an equilibrium GDP of $600 billion and an inflationary gap of $30 billion, with a marginal propensity to consume (MPC) of 0.75. The inflationary gap indicates that the actual GDP is above the equilibrium GDP. To find the actual GDP, we simply need to add the inflationary gap to the equilibrium GDP.

Equilibrium GDP + Inflationary Gap = Actual GDP

$600 billion + $30 billion = $630 billion

Therefore, the actual GDP in this scenario would be $630 billion. The MPC is not needed to calculate this figure, given we are only identifying the gap between equilibrium GDP and actual GDP.