- Suppose you are given the following information for an economy without government spending, exports, or imports. C is desired consumption, I is desired investment, and Y is income. C and I are given by:
C = 1300 + 0.85Y
I = 450
- What is the equation for the aggregate expenditure (AE) function?
- Applying the equilibrium condition that Y = AE, determine the level of equilibrium national income.
- Using your answer from part (b), determine the values of consumption, saving, and investment when the economy is in equilibrium.
- Consider the simplest macro model with demand-determined output. The equations are:
C = 150 + 0.8Yd, Yd = Y-T,
I = 400, G = 700,
T = .2Y, X = 130, and
IM = 0.14Y.
- What is the Marginal Propensity to Consume (MPC) in this model?
- What is the Marginal Propensity to import?
- What is the total autonomous expenditure?
- What is the equilibrium GDP?