Government Expenditure Sample Assignment

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Government Expenditure Sample Assignment

If government wants to raise the GDP by Rs 500 crore what would the required government expenditure in illustrations of above?

Solution :

Given
                           C = 150 + 0.7 Y
                            I = Rs. 200 crore
                           G = Rs. 250 crore

Equilibrium GDP is Rs 2000 crore. Government wants to raise the GDP by Rs 500 crore. Required government expenditure can be calculated as:
                              Y = C + 1 +G
=>                      2500 = 150 +0.7Y + 200 + G₀
=>                      2500 = 150 +0.7 X 2500 + 200 +G₀
=>                      2500 = 150 +1750 +200 + G₀
=>                           G = 2500-2100 = Rs 400 crore.
Thus, the required government expenditure would be Rs 400 crore if government wants to raise the GDP by Rs 500 crore.

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