If autonomous expenditure by the government increases by Rs 5,000, find increase in equilibrium GDP when half of income is always spent on the purchase of goods for consumption.

5,000

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10,000

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10,500

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Solution

The correct option is B
10,000

$Δ Y = \frac{1}{1 - M P C} . Δ A$ [Where A is autonomous expenditure by the government]

$= \frac{1}{1 - 0.5} \times 5, 000 = \frac{5, 000}{0.5} = 10, 000.$

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Similar questions

Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100.

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Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

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If autonomous expenditure by the government increases by Rs 5,000, find increase in equilibrium GDP when half of income is always spent on the purchase of goods for consumption.

The correct option is B 10,000 ΔY=11−MPC.ΔA [Where A is autonomous expenditure by the government] =11−0.5×5,000=5,0000.5=10,000.

The correct option is B
10,000

$Δ Y = \frac{1}{1 - M P C} . Δ A$ [Where A is autonomous expenditure by the government]

$= \frac{1}{1 - 0.5} \times 5, 000 = \frac{5, 000}{0.5} = 10, 000.$