Given this diagram; what is the level of G (government purchases of goods and services)? 18. Given this diagram; what is the level of Ca (autonomous consumption)?
Given this diagram; what is the level of G (government purchases of goods and services)? 18. Given this diagram; what is the level of Ca (autonomous consumption)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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17. Given this diagram; what is the level of G (government purchases of goods and services)?
18. Given this diagram; what is the level of Ca (autonomous consumption)?
Transcribed Image Text:This graph represents the relationship between income (Q) and various economic factors including expenditures and savings. The x-axis denotes income (Q) while the y-axis represents expenditures and income.
**Graph Details:**
1. **Q (Curve in Black)**: Represents the total income line, acting as a reference for comparing other variables.
2. **AE (Curve in Gray)**: Indicates aggregate expenditures, closely following the Q line, suggesting a proportional relationship between income and aggregate expenditures.
3. **C (Curve in Orange)**: Denotes consumption expenditures, consistently increasing with income but at a slightly lower rate than AE.
4. **G (Horizontal Pink Line)**: Stands for government expenditures, which remain constant regardless of income changes.
5. **S (Curve in Green)**: Represents savings, which increase steadily as income rises, starting from zero when income is low.
6. **I (Curve in Blue)**: Indicates investment expenditures, following a steady but slow upward trend.
7. **Xn (Horizontal Purple Line)**: Denotes net exports, which remain constant and below zero, implying a trade deficit.
The graph uses solid lines to differentiate between the levels and changes in income and expenditures, providing insights into economic behavior and fiscal policy impact.
Expert Solution
Step 1: State the given information:
The given diagram has 6 curves; i.e., AE, C, I, G, Xn, and S
Curve AE represents the aggregate expenditure.
Curve C represents the consumption function
Curve I represents the investment.
Curve G represents the government purchases of goods and services
Curve Xn represents the net export.
Curve S represents the saving.
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