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

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.

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.