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Aggregate expenditure

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The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or exports, the people of Turtle Island pay no income taxes, and the price level is fixed.

a. Calculate autonomous expenditure.
b. Calculate the marginal propensity to consume.
c. What is aggregate planned expenditure when real GDP is $6 billion?
d. If real GDP is $4 billion, what is happening to inventories?
e. If real GDP is $6 billion, what is happening to inventories?
f. Calculate the multiplier.

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a. Calculate autonomous expenditure.
Solution:
Autonomous expenditure does not depend on real GDP. It equals the value of aggregate planned expenditure when real GDP is zero. Thus, autonomous expenditure is $2 billion

b. Calculate the marginal propensity to consume.

Solution:
To find the marginal propensity to consume, find the slope of the above curve.
Marginal propensity to ...

Solution Summary

The figure illustrates the components of aggregate planned expenditure on Turtle Island. Turtle Island has no imports or exports, the people of Turtle Island pay no income taxes, and the price level is fixed.

a. Calculate autonomous expenditure.
b. Calculate the marginal propensity to consume.
c. What is aggregate planned expenditure when real GDP is $6 billion?
d. If real GDP is $4 billion, what is happening to inventories?
e. If real GDP is $6 billion, what is happening to inventories?
f. Calculate the multiplier.

$2.19
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