Author Question: Which of the following would result in GDP for an economy equal to 10 trillion? A) C = 7 trillion ... (Read 77 times)

Haya94 · **on:** Jun 29, 2018

Which of the following would result in GDP for an economy equal to 10 trillion?

A) C = 7 trillion
I = 2 trillion
G = 4 trillion
NX = 3 trillion B) C = 6 trillion
I = 2 trillion
G = 1.5 trillion
NX = -2 trillion C) C = 4 trillion
I = 3 trillion
G = 2 trillion
NX = -1 trillion D) C = 5 trillion
I = 5 trillion
G = 2 trillion
NX = -2 trillion

Question 2

Suppose real GDP is currently 12.5 trillion and potential real GDP is 13 trillion. If the president and Congress increased government purchases by 500 billion, what would be the result on the economy?
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What will be an ideal response?

aruss1303 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

The economy would go from a short-run equilibrium below potential GDP to a short-run equilibrium above potential GDP. The increase in government purchases, which equals the shortfall in real GDP from potential real GDP, is too large. The increase in government purchases needs to be less than the shortfall in real GDP because of the multiplier effect.