Question

Answer the question below on the basis of the following information for a private closed economy: Refer to the information. If the real interest rate is 10 percent, the equilibrium GDP will be:....

Answer 1

The equilibrium GDP can be found by setting aggregate expenditure (AE) equal to national income (Y) in an economy. The formula to calculate AE is provided, and by setting AE equal to Y, we can find the equilibrium GDP.

Step-by-step explanation:

The equilibrium GDP can be found by setting aggregate expenditure (AE) to be equal to national income (Y). In this case, AE consists of consumption (C), investment (I), government spending (G), and net exports (X-M).

Given the provided information, we can calculate AE as follows: AE = $500 + 0.8(Y - T) + $2,000 + $1,000 + $2,000 - 0.05(Y - T) = $5,500 + 0.75Y - 0.85T.

To find the equilibrium GDP, we need to set AE equal to Y and solve for Y. So, $5,500 + 0.75Y - 0.85T = Y.

Once we have values for T and Y, we can calculate the equilibrium GDP.