# Aplia Homework: Aggregate Expenditure and Aggregate Demand**Instructions**Consider a hypothetical economy where the marginal propensity to consume (MPC) is 0.50. This indicates that if disposable income increases by $1, consumption increases by $0.50.Suppose further that last year, disposable income in the economy was $350 billion and consumption was $300 billion.**Task**Using the graph provided, use the blue line (circle symbol) to plot this economy's consumption function based on these data.**Graph Explanation**- **X-Axis:** Represents Disposable Income in billions of dollars, ranging from -100 to 800.- **Y-Axis:** Represents Consumption in billions of dollars, ranging from -100 to 700.- A line or point should be plotted at a disposable income of $350 billion with corresponding consumption of $300 billion, illustrating the relationship between these variables.**Follow-up Questions**From the preceding data, determine:1. The level of saving in the economy last year in billion dollars.2. The marginal propensity to save in this economy.**Note:** Fill in the blanks with your calculated values.

Consumption function = C = C0 + Cy Where, C = Consumption C0 = Autonomous Consumption Cy = MPC Y = Disposable income Therefore, C = C0 + Cy 300 = C0 + 0.5*350 300 = C0 + 175 C0 = 125 So, Consumption Function become C = 125 + 0.5yThis can be graphed as below 1) Saving = Income - Consumption = 350 billion - 300 billion = 50 billion 2) MPS = 1 - MPC = 1 - 0.5 = 0.5

Answered: From the preceding data, you know that…

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From the preceding data, you know that the level of saving in the economy last year was $ billion and the marginal propensity to save in this economy is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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