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.

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.

An increase in the price level will
a. shift the aggregateexpenditure function upward
b. shift the aggregateexpenditure function downward
c. result in a movement upward along the aggregateexpenditure function
d. result in a movement downward along the aggregateexpenditure function
e. change the slope of the aggregate ex

Explain how the aggregateexpenditure function shifts in response to changes in each of the following variables:
a. The real interest rate increases.
b. Consumer confidence decreases.
c. Higher taxes are imposed on business profits.
d. The economies of many countries in the rest of the world go into recessions.

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

Q8.1 Demand Side Equilibrium & Multiplier
Consider an economy with the following characteristics (in $ billion):
C = 60 + 0.8Yd (where Yd = disposable income)
t = 0.2
I = 40
G = 30

Suppose you were given the following information for an economy without government spending, exports, or income. C is desired consumption, I is desired investment, and Y is income. C and I are given by:
C = 1400 + 0.8Y
I = 400
a) What is the equation for the aggregateexpenditure (AE) function?
b) Applying the equilibr

Can you tell me which statement is corrrect (if any) and why?
1. Actual aggregateexpenditures does not always equal real GDP.
2. Planned investment exceeds actual investment when real GDP is greater than aggregate planned expenditures.
3. Actual investment exceeds planned investment when real GDP is less than aggregate

In the Keynesian cross, assume that the consumption function is given by
C = 200 + .9 (Y-T).
Planned investment is 100; government purchases and taxes are both 100.
a. Graph planned expenditure as a function of income.
b. What is the equilibrium level of income?
c. If government purchases increase to 125, what is the

This problem was changed from calculating aggregate demand to calculating the changes in aggregateexpenditures. I thought with aggregateexpenditures, knowing the MPC is useless information unless we are going to calculate the new, equilibrium GDP. I am stumped and would appreciate any insight.
-Assume that a hypothetical