Economics 100 – Problem Set #5 (due Tuesday, May 1)
Spring 2007
Page 1 of 3
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
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
19,000
20,000
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.
1.
Using the consumption function and autonomous expenditure data listed above, fill in the above
table.
Indicate the equilibrium level of real GDP (
Y
eq
) by circling the row.
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Economics 100 – Problem Set #5 (due Tuesday, May 1)
Spring 2007
Page 2 of 3
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
planned aggregate expenditures (
PAE
)
real GDP (
Y
)
2. On the graph above,
plot
the (i)
PAE
line, (ii)
Y
=
PAE
line and (iii) potential real GDP
Y
*
line
using the data from the question.
Make sure to label each curve.

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- Spring '07
- Kasilwal
- Economics, Macroeconomics, Inflation, Monetary Policy, Federal Reserve
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