Question

Savings are 20 percent of income because Telerians like to enjoy life ϵ consume most of their income. Annual investment is kept constant at 200,000 telers. The commodities the country primarily produces are wheat, wine, and meat. Governmental expenditure is zero because the citizens self-govern themselves for free. They also do not trade. The following data are estimates for the nation of Teleria: - Real GNP (Y):930,000 telers - Investment (I): 200,000 telers You are asked by the business editor of the Telerian Gazette, the national newspaper, to predict the economic events of the next few months. Based on the data given, you predict inventories will and the level of real GNP will Things will stop changing when Teleria's economy will reach equilibrium when its real GNP = _____ telers.

Answer 1

To find the equilibrium for this economy, we set the level of savings equal to the level of investment. The equilibrium level of real GNP is found by solving the equation. To achieve potential GDP, we can either plug in the values and solve for government spending, or use the multiplier approach.

Step-by-step explanation:

In order to find the equilibrium for this economy, we need to set the level of investment (I) equal to the level of savings (S). Since savings are 20% of income, we can calculate the savings as 0.2 times the real GNP (Y). Given that the investment is 200,000 telers, we can set up the equation: I = S. This gives us 200,000 = 0.2Y, which we can solve for Y to find the equilibrium level of real GNP.

To calculate the change in government spending needed to achieve the potential GDP of 3,500, we can use the equation Y = C + I + G + X - M. By plugging in the values and rearranging the equation, we can solve for G.

Alternatively, we can use the multiplier approach. The multiplier is calculated as 1 / (1 - MPC), where MPC is the marginal propensity to consume. We can use this multiplier to find the change in government spending needed to achieve the potential GDP.