Problem Set For Chapter 20
Aggregate Expenditure and Equilibrium Output
1)
The following information is provided for a simple economy with no government and
foreign trade.
Y
C
I
AE
S
Effect on Income
0
250
250
500
 250
Pressure to rise
500
650
250
900
 150
Pressure to rise
1000
1500
2000
2500
3000
3500
4000
3450
250
3700
550
Pressure to fall
where Y=income, C=planned consumption, AE=aggregate expenditure, I=planned investment, and
S=planned saving.
a)
Derive a simple linear (Keynesian) consumption function equation and interpret it.
b)
Complete the above table and find the equilibrium level of income.
c)
Graph the consumption and aggregate expenditure (AE) functions on an
appropriate diagram and show the equilibrium level of income.
2)
Assume a very simple macro model:
(1)
AE = C + I
(2)
C = 25 +0,75 Y
(3)
I = 50
(4)
Y = AE
where all the variables have their usual meaning.
a)
Interpret the equations (1) to (4).
b)
Derive the saving function and interpret it.
c)
Show that mpc + mps = 1
d)
Find the simple autonomous expenditure multiplier for this economy and interpret it.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '09
 ARZUAKYüZ
 Economics, Macroeconomics, National Income, .........

Click to edit the document details