The Simple Keynesian Model (i.e., the income-expenditure model). Assume: C = 150 + 0.9 DI I = 50 DI = C + I in equilibrium for a 2-sector model (Note: DI = C in a 1-sector model) Define the term, consumption. What is the value of “autonomous” consumption (also called “a” or the vertical intercept)? What is the value of the slope (also referred to as “b”) of the consumption function? There’s another name for the slope of the consumption function. What is it? What is the value of DI when the model is in equilibrium? What is the value of the “oversimplified” expenditure multiplier? If full-employment means that DI = $5000, then how much should autonomous consumption (or autonomous investment) increase to achieve full-employment? (Hint: Use the multiplier process formula.) Draw a graph of this 2-sector model. Indicate equilibrium DI, full-employment DI, as well as the C + I function.

The equilibrium occurs where aggregate demand and aggregate supply are equal. The level of income is…

Answered: Simple Keynesian Model (i.e., the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Simple Keynesian Model (i.e., the income-expenditure model).

Assume: C = 150 + 0.9 DI

I = 50

DI = C + I in equilibrium for a 2-sector model

(Note: DI = C in a 1-sector model)

Define the term, consumption.

What is the value of “autonomous” consumption (also called “a” or the vertical intercept)?

What is the value of the slope (also referred to as “b”) of the consumption function?

There’s another name for the slope of the consumption function. What is it?

What is the value of DI when the model is in equilibrium?

What is the value of the “oversimplified” expenditure multiplier?

If full-employment means that DI = $5000, then how much should autonomous consumption (or autonomous investment) increase to achieve full-employment? (Hint: Use the multiplier process formula.)

Draw a graph of this 2-sector model. Indicate equilibrium DI, full-employment DI, as well as the C + I function.

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