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Problem set 5 Spring 2007

Problem set 5 Spring 2007 - Economics 100 Problem Set#5(due...

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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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