a. Suppose that in an economy with no government, the aggregate expenditure function is: AE = 50+0.75Y with an investment level of 100. i. Determine the level of planned expenditure when income is 150. ii. Draw a diagram showing the aggregate expenditure function iii. What are the levels of autonomous consumption and induced consumption at income levels of 150 and 200.
a. Suppose that in an economy with no government, the aggregate expenditure
function is: AE = 50+0.75Y with an investment level of 100.
i. Determine the level of planned expenditure when income is 150.
ii. Draw a diagram showing the aggregate expenditure function
iii. What are the levels of autonomous consumption and induced
consumption at income levels of 150 and 200.
b. An open economy with a government sector is in equilibrium. Assume the
following:
1. Marginal propensity to save = 0.4
2. Marginal propensity to tax = 0.2
3. Marginal propensity to import = 0.2
i. Solve for the value the government multiplier
ii. Determine by how much the equilibrium level of national income
would fall, if injections in the economy are reduced by Ks.60m.
iii. Determine the new level of income if taxes increased by KS. 20
c. Propose four reasons why economists should not consider
measure of the standard of living in a country.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
