Question

All figures are in billions of dollars. Refer to table 5 data. If this economy is closed to international trade, then the equilibrium GDP and the multiplier would be:

Aggregate Expenditures
GDP (Closed Economy) Exports Imports
$400 $440 $50 $60
450 480 50 60
500 520 50 60
550 560 50 60
600 600 50 60
650 640 50 60
700 680 50 60

a. $500 billion and 4
b. $500 billion and 5
c. $600 billion and 5
d. $600 billion and 4

Answer 1

The equilibrium GDP in a closed economy would be $600 billion, based on the data provided where aggregate expenditures equal GDP. The multiplier would be either 4 or 5.

Step-by-step explanation:

The question involves understanding the concepts of closed economy GDP and the calculation of the economic multiplier. To find the equilibrium GDP in a closed economy, we look for the level of GDP at which aggregate expenditures equal GDP, meaning there is no unplanned inventory accumulation or depletion. Based on the data given, we can see that equilibrium GDP occurs when aggregate expenditures equal $600 billion, as both values are the same and there are no exports or imports in a closed economy scenario.

The multiplier effect is calculated using the marginal propensity to consume (MPC) or the formula 1/(1-MPC). However, the MPC is not explicitly given in the question. Typically, to find the multiplier, we'd need to identify the increase in expenditures and the resulting increase in GDP.

Assuming a standard MPC value in a closed economy, the multiplier is likely to be 4 or 5. Considering the limited information provided, we cannot definitively determine the exact value of the multiplier without additional data, such as the MPC value.