4. In the economy of St. Maynard Island, autonomous consumption expenditure is $185 million, and the marginal propensity to consume is 0.75. Investment is $150 million, government expenditure is $100 million, and net taxes are $80 million. Investment, government expenditure, and taxes are constant - they do not vary with income. The island does not trade with the rest of the world. a) What is the consumption function? b) What is the aggregate expenditure function? c) What is the island's autonomous aggregate expenditure?

4. In the economy of St. Maynard Island, autonomous consumption expenditure is $185 million, and the marginal propensity to consume is 0.75. Investment is $150 million, government expenditure is $100 million, and net taxes are $80 million. Investment, government expenditure, and taxes are constant - they do not vary with income. The island does not trade with the rest of the world. a) What is the consumption function? b) What is the aggregate expenditure function? c) What is the island's autonomous aggregate expenditure?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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Question

4. In the economy of St. Maynard Island, autonomous
consumption expenditure is $185 million, and the
marginal propensity to consume is 0.75. Investment is
$150 million, government expenditure is $100 million,
and net taxes are $80 million. Investment, government
expenditure, and taxes are constant - they do not vary
with income. The island does not trade with the rest of
the world.
a) What is the consumption function?
b) What is the aggregate expenditure function?
c) What is the island's autonomous aggregate
expenditure?
d) What is the size of the multiplier in St. Maynard Island's
economy?
e) What is the island's aggregate planned expenditure and
what is happening to inventories when real GDP is
$1,100 million?
f) What is the economy's equilibrium aggregate
expenditure?

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