Practice - INCOME – EXPENDITURE

Practice - INCOME – EXPENDITURE - I NCOME...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
INCOME – EXPENDITURE: Practice Problems – Ch. 11, problems 9, 10. 9. a. GDP YD C Iplan AEplan Iunplan $0 $0 $100 $300 $400 - $400 400 400 400 300 700 - 300 800 800 700 300 1,000 - 200 1,200 1,200 1,000 300 1,300 - 100 1.600 1,600 1,300 300 1,600 0 2,000 2,000 1,600 300 1,900 + 100 2,400 2,400 1,900 300 2,200 + 200 2,800 2,800 2,200 300 2,500 + 300 3,200 3,200 2,500 300 2,800 + 400 b. Consumption function: C = A + MPC * YD. Since YD = 0 -> C = 100, we know that A = 100. MPC = C/ YD = 300/400 = ¾ = 0.75. This means that the consumption function is: C = 100 + 0.75*YD. c. Y* = GDP in equilibrium = 1,600 . That is clear from the table above. When GDP = YD = 1,600, AEplan = GDP, and there is no unplanned change in inventories. d. Multiplier = 1/(1 – MPC) = 1/(1- 0.75) = 4. e. I = - 100. We can either use the table above and insert 200 instead of 300 under Iplan, or we can use the equation for the multiplier effect: GDP = 1/(1-MPC) * I. In this case: GDP = 4 * (-100) = -400. f. If autonomous consumer spending increases from 100 to 200,
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/23/2011 for the course ECON 106 taught by Professor Lonning during the Fall '09 term at DePaul.

Page1 / 3

Practice - INCOME – EXPENDITURE - I NCOME...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online