91Ó°ÊÓ

Aggregate demand is the total amount of goods and services demanded by the economy for the given level of prices at a particular time. It is calculated as the sum of consumption, government spending, investment and net export.

In the question it is given that the price level is$\$125$and real GDP is $\$18$trillion. If the level of price falls to$\$120$the autonomous expenditure will rise by$\$250$billion.

Marginal propensity to consume is $0.75$.

The equilibrium level of real GDP is equal to the value of multiplier time's autonomous expenditure. It is shown by the formula below:

$Y=k×a$ $Y=$where, Real GDP

$K=$²Ñ³Ü±ô³Ùı±è±ô¾±±ð°ù

$a=$Autonomous Expenditure

The value of multiplier is calculated by the formula given below:

$k=\frac{1}{1-MPC}$

$=\frac{1}{1-0.75}$

$=4$

The autonomous expenditure is increased by$\mathbf{\$}\mathbf{250}\mathbf{\text{billion}}$or $\mathbf{0}\mathbf{.}\mathbf{25}$trillion.

According to the formula of the equilibrium level of real GDP given above, the change in real GDP will be equal to:

$Y=k×a$

$=4×\$0.25$

$=\$1$

The change in real GDP with the fall in prices is equal to$\$1$ trillion

The new level of real GDP will be equal to:

$\text{Real GDP}=\$18+\$1$

$=\$19$

Thus, Real GDP at price $\$120$will be equal to $\$19$trillion