Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and planned government purchases = $4000. All planned expenditure are autonomous expenditures. Taxes ( T) is = and net exports = zero. a. Write out the consumption function b. What is induced consumption in this model? c. Write out the planned expenditure function (show your work) d. Calculate equilibrium real current GDP (income) (show your work) e. How much is the expenditure multiplier? f. If at the current level of equilibrium, the economy is experiencing an inflationary gap $200. How much is full employment GDP? g. How much does planned investment change to close the inflationary gap?
Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and planned government purchases = $4000. All planned expenditure are autonomous expenditures. Taxes ( T) is = and net exports = zero. a. Write out the consumption function b. What is induced consumption in this model? c. Write out the planned expenditure function (show your work) d. Calculate equilibrium real current GDP (income) (show your work) e. How much is the expenditure multiplier? f. If at the current level of equilibrium, the economy is experiencing an inflationary gap $200. How much is full employment GDP? g. How much does planned investment change to close the inflationary gap?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Planned expenditure function question
Do all parts to the question (show your work)
Assume in Macroland, MPC = 0.8, and autonomous consumption = $2000. Planned investment = $5000, and
planned government purchases = $4000. All planned expenditure are autonomous expenditures. Taxes ( T) is = zero,
and net exports = zero.
a. Write out the consumption function
b. What is induced consumption in this model?
c. Write out the planned expenditure function (show your work)
d. Calculate equilibrium real current GDP (income) (show your work)
e. How much is the expenditure multiplier?
f. If at the current level of equilibrium, the economy is experiencing an inflationary gap $2000. How much is the
full employment GDP?
g. How much does planned investment change to close the inflationary gap?
h. Graph the planned expenditure function. Show the change (shift) for a change in investment to close the gap.
Show equilibrium points, full-employment GDP. Label all points clearl
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