Suppose the MPC is .90 and the MPI is .10. 1f government expenditures go up $100 billion while taxes fall$10 billion, what happens to the equilibrium level ofreal GDP?

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To determine To compute: The equilibrium level of real GDP Explanation Given information: The value of MPC is .90 .and the value of MPI is .10 . Government expenditure is $ 100 b i l l i o n while the taxes fall $ 10 b i l l i o n . Calculation of the equilibrium Gross Domestic Product by both tax cut and equilibrium government spending are as follows:- Calculation of the change in equilibrium GDP when government spends $ 100 b i l l i o n Multiplier = change in equilibirum GDP change in autonmous expenditure 5 = change in equilibirum GDP 100 Change in equilibrium = 100 × 5 = $ 500 billion Thus, the change in equilibrium Gross Domestic Product is $ 500 billion when government spends $ 100 b i l l i o n . Calculation of the change in equilibrium Gross Domestic Product due to tax cut:- Substitute the value in the formula:- Here the value of tax will be taken as negative since the tax reduction is occurring that is − $ 10 billion Tax Multiplier = change in equilibirum GDP Tax Cut − 4 = change in equilibirum GDP − 10 Change in equilibrium = − 10 × − 4 = $ 40 bil

Suppose the MPC is .90 and the MPI is .10. 1f government expenditures go up $100 billion while taxes fall$10 billion, what happens to the equilibrium level ofreal GDP?

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Economics:

Suppose the MPC is .90 and the MPI is .10. 1f government expenditures go up $100 billion while taxes fall$10 billion, what happens to the equilibrium level ofreal GDP?

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