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Equations for $C$, $I$, $G$, and $NX$ are given below. If the equilibrium level of $GDP$ is $\$21,500$, what is the marginal propensity to consume?

$$C = 1,500 + (MPC)\cdot Y$$ $$I = 1,000$$ $$G = 2,000$$ $$NX = -200$$

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    $\begingroup$ Please provide your tentative solution so that we can get what is not clear to you $\endgroup$
    – PhDing
    Jun 11, 2018 at 7:59

1 Answer 1

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In equilibrium,

Y = AD ________________________ ( eq 1)

AD= C + I + G + NX

AD= 1,500 + cY + 1,000 + 2,000 - 200

Or AD = 4,300 +cY Or Y = 4,300 +cY ------(from 1)

Or (1-c)Y=4,300

Or 1-c = 4,300/Y = 4,300/21,500 = 0.2

Or 1-c = 0.2

Or c = 0.8

Hope this helps

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