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Aggregate expenditure

The spreadsheet lists the components of aggregate planned expenditure in the United Kingdom. The numbers are in billions of pounds.

A B C D E F G
1 Y C I G X M
2 A 100 110 50 60 60 15
3 B 200 170 50 60 60 30
4 C 300 230 50 60 60 45
5 D 400 290 50 60 60 60
6 E 500 350 50 60 60 75
7 F 600 410 50 60 60 90

a. Calculate autonomous expenditure.
b. Calculate the marginal propensity to consume
c. What is aggregate planned expenditure when real GDP is 200 billion pounds?
d. If real GDP is 200 billion pounds, what is happening to inventories?
e. If real GDP is 500 billion pounds, what is happening to inventories?
f. Calculate the multiplier.

Solution Preview

a. Calculate autonomous expenditure.

Solution:
Autonomous expenditure equals 220 billion

b. Calculate the marginal propensity to consume

Solution:
Thinking:
Income increases from 100 billion to 200 billion
Consumption expenditure increases from 110 billion to 170 billion. Thus
The marginal propensity to consume = (170 - 110) / 100 = 0.6.

c. What ...

Solution Summary

This solution details how to solve an aggregate expenditure problem.

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