Equilibrium GDP in a Closed Keynesian Economy
Understanding Equilibrium GDP in a Closed Keynesian Economy
A closed Keynesian economy operates without international trade and is characterized by government intervention to maintain stability. In this scenario, we consider the following equations:
C = 500 + 0.75Y
I = 300
G = 400
Calculating Equilibrium GDP
To determine the equilibrium GDP, we need to find the point where total spending (aggregate demand) equals the total output (GDP). In a closed Keynesian economy, the equilibrium GDP is achieved when C + I + G is equal to Y.
Let's calculate it step by step:
Consumption (C) = 500 + 0.75Y
Investment (I) = 300
Government spending (G) = 400
Aggregate Demand (AD) = C + I + G
AD = (500 + 0.75Y) + 300 + 400
AD = 500 + 0.75Y + 700
AD = 1200 + 0.75Y
Set AD equal to Y for equilibrium:
1200 + 0.75Y = Y
0.25Y = 1200
Y = 4800
Conclusion
The equilibrium GDP in the closed Keynesian economy is 4800.
In conclusion, the equilibrium GDP is determined by the equality of total output and total spending in the economy. With the given consumption, investment, and government spending functions, we calculated the equilibrium GDP to be 4800.
For further understanding of Equilibrium GDP, you can refer to the link provided.
Consider the following closed Keynesian Economy: C=500+.75 Y , I=300, G=400. What is the equilibrium GDP? A) 2400 B) 3600 C) 4800 D) 5700 Final answer: The equilibrium GDP in the closed Keynesian economy is 4800. Explanation: In a closed Keynesian economy, equilibrium GDP is determined by the equality of total output (GDP) and total spending (aggregate demand). In this case, the consumption function is given by C=500+.75Y, where Y represents GDP. Equilibrium GDP occurs when total spending (C+I+G) equals GDP. By calculating the aggregate demand and setting it equal to GDP, we found that the equilibrium GDP is 4800.