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Key for Problem set 5 Spring 2007

# Key for Problem set 5 Spring 2007 - Economics 100 Key for...

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Economics 100 – Key for Problem Set #5 Spring 2007 Page 1 of 4 Real GDP Autonomous Consumption Total Consumption Other Autonomous Expenditure Planned Aggregate Expenditure Unplanned Aggregate Expenditure Y C C P I G NX + + PAE Y - PAE 0 1,000 1,000.00 4,000 5,000.00 -5,000.00 1,000 1,000 1,666.67 4,000 5,666.67 -4,666.67 2,000 1,000 2,333.33 4,000 6,333.33 -4,333.33 3,000 1,000 3,000.00 4,000 7,000.00 -4,000.00 4,000 1,000 3,666.67 4,000 7,666.67 -3,666.67 5,000 1,000 4,333.33 4,000 8,333.33 -3,333.33 6,000 1,000 5,000.00 4,000 9,000.00 -3,000.00 7,000 1,000 5,666.67 4,000 9,666.67 -2,666.67 8,000 1,000 6,333.33 4,000 10,333.33 -2,333.33 9,000 1,000 7,000.00 4,000 11,000.00 -2,000.00 10,000 1,000 7,666.67 4,000 11,666.67 -1666.67 11,000 1,000 8,333.33 4,000 12,333.33 -1333.33 12,000 1,000 9,000.00 4,000 13,000.00 -1000.00 13,000 1,000 9,666.67 4,000 13,666.67 -666.67 14,000 1,000 10,333.33 4,000 14,333.33 -333.33 15,000 1,000 11,000.00 4,000 15,000.00 00.00 16,000 1,000 11,666.67 4,000 15,666.67 333.33 17,000 1,000 12,333.33 4,000 16,333.33 666.67 18,000 1,000 13,000.00 4,000 17,000.00 1,000.00 19,000 1,000 13,666.67 4,000 17,666.67 1,333.33 20,000 1,000 14,333.33 4,000 18,333.33 1,666.67 Data: The consumption function is 1,000 (2/3)* C Y = + so that 1,000 C = , MPC = 2/3 and T = 0. Other autonomous expenditure P I G NX + + is 4,000. Potential real GDP is Y * = 16,000.

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Economics 100 – Key for Problem Set #5 Spring 2007 Page 2 of 4 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 PAE line Y=PAE Potential real GDP planned aggregate expenditures ( PAE ) real GDP ( Y ) 1. Using the consumption function and autonomous expenditure data listed above, fill in the above table. The equilibrium level of real GDP ( Y eq ) is 16,000 where Y = PAE . (4 points) 2. On the graph above,
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