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/(1MPC) *
∆
I. In this case:
∆
GDP = 4 * (100) = 400.
f. If autonomous consumer spending increases from 100 to 200,