An economy with no government is described by the following: • Marginal propensity to consumer = 0.8 Marginal propensity to import = 0.2 • Autonomous expenditure = 500 Potential GDP = 1500 1. The aggregate expenditure function is thus AE +- 2. The multiplier is 3. Equilibrium GDP is Y =

An economy with no government is described by the following: • Marginal propensity to consumer = 0.8 Marginal propensity to import = 0.2 • Autonomous expenditure = 500 Potential GDP = 1500 1. The aggregate expenditure function is thus AE +- 2. The multiplier is 3. Equilibrium GDP is Y =

MACROECONOMICS

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Author:Baumol

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Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section: Chapter Questions

Problem 6TY

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Question

An economy with no government is described by the following:
• Marginal propensity to consumer = 0.8
• Marginal propensity to import = 0.2
Autonomous expenditure = 500
%3D
%3D
Potential GDP
1500
%3!
1. The aggregate expenditure function is thus AE
Y.
2. The multiplier is
3. Equilibrium GDP is Y =
4. The output gap is
5. There is a
• Joutput gap.

Expert Solution

Step 1

Given information:

Marginal propensity to consumer = 0.8

Marginal propensity to import = 0.2

Autonomous expenditure = 500

Potential GDP = 1500

GDP=C+I+G+X-M

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