Homework Answers
1. Equilibrium value of consumption, C = Y-S-T
= 5000- 450-650 = $ 3900
2. Marginal propensity to consume ,MPC = 1 - MPC = 1-0.10 = 0.90
3. The expenditure multiplier ,m = 1/1-MPC = 1/0.10 = 10
4. G-T =$(800-650)= $150 , this represents deficit.
5. Investment rises by $180.
Change in GDP = (10)(180) = $1800
Then , equilibrium GDP will rise by $1800.
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