In an income-expenditure model, the: O a. aggregate income is measured on the horizontal axis and aggregate expenditure is measured on the vertical axis. O b. aggregate expenditure is measured on the horizontal axis and aggregate income is measured on the vertical axis. Oc. marginal propensity to spend is measured on the horizontal axis and income is measured on the vertical axis. O d. income is measured on the horizontal axis and the marginal propensity to spend is measured on the vertical axis.
In an income-expenditure model, the: O a. aggregate income is measured on the horizontal axis and aggregate expenditure is measured on the vertical axis. O b. aggregate expenditure is measured on the horizontal axis and aggregate income is measured on the vertical axis. Oc. marginal propensity to spend is measured on the horizontal axis and income is measured on the vertical axis. O d. income is measured on the horizontal axis and the marginal propensity to spend is measured on the vertical axis.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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which seems to be correct?
Transcribed Image Text:### Understanding the Income-Expenditure Model
In an income-expenditure model, the following statements explain how various economic variables are measured on a graph:
1. **Aggregate Income (Y) versus Aggregate Expenditure (E)**
- **Option a**: Aggregate income is measured on the horizontal axis and aggregate expenditure is measured on the vertical axis.
- **Option b**: Aggregate expenditure is measured on the horizontal axis and aggregate income is measured on the vertical axis.
2. **Marginal Propensity to Spend (MPS)**
- **Option c**: Marginal propensity to spend is measured on the horizontal axis and income is measured on the vertical axis.
- **Option d**: Income is measured on the horizontal axis and the marginal propensity to spend is measured on the vertical axis.
In the context of an income-expenditure model, typically:
- The standard convention is that **aggregate income (Y)** is represented on the horizontal axis,
- and **aggregate expenditure (E)** is represented on the vertical axis.
Thus, the correct understanding for typical models would align with **Option a**.
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Note: This educational content helps to clarify common axis conventions used in economic models, which are critical for interpreting and analyzing economic graphs accurately.
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