Final answer:
To calculate the equilibrium GDP and the multiplier in a closed economy using the Keynesian cross diagram, you need to use the marginal propensity to consume (MPC), tax rate, government spending, and investment. The multiplier is calculated using the formula (1 / (1 - MPC × (1 - Tax Rate))). Without complete information, the precise equilibrium GDP and multiplier cannot be determined, but the steps outlined explain how to find these values.
Step-by-step explanation:
In order to determine the equilibrium GDP for a closed economy using the Keynesian cross diagram with the given information, we start by understanding the components of the aggregate expenditure: Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M). For an economy closed to international trade, we could ignore the Net Exports, so the GDP will be determined by C + I + G only. Since consumption is affected by disposable income (income after taxes).
The table tells us that the tax rate is 0.4, MPC is 0.8, investment is $2,000 billion, and government spending is $1,000 billion. Based on the provided formula for the multiplier (1 / (1 - MPC × (1 - Tax Rate))), we can calculate the multiplier and then apply it to see how changes in autonomous spending would affect GDP. In this scenario, we're interested in the multiplier effect of government spending. The calculation of the multiplier would be 1 / (1 - 0.8 × (1 - 0.4)), which is 1 / (1 - 0.48), equaling 1 / 0.52, which is approximately 1.923. Applying this multiplier to the changes in autonomous spending should provide the increase in equilibrium GDP.
Without the full data or output level, we cannot accurately determine which option is correct. But the method described would be how one would calculate the multiplier effect on equilibrium GDP in a closed economy.