Aggregate Expenditure Model in Closed Economy
Not what you're looking for?
In the aggregate expenditure model, assume that the consumption function is given by C = 800 + 0.58(Y - TP), that planned investment (I) equals 250, and that government purchases (G) and taxes (TP) each equal 200. Assume that there is no import or export spending. If G is now 300, calculate the equilibrium level of income (to 3 decimal places).
Purchase this Solution
Solution Summary
Solution contains step by step explanation of calculating equilibrium income through Aggregate Expenditure Model in Closed Economy. It also contains method to find change in equilibrium income as a result of change in value of variables.
Meaning of each component of equation as well as explanation of calculations is provided at appropriated places.
Solution Preview
As per Aggregate Expenditure Model,
AE = C + I + G +X
Where,
AE = Aggregate Expenditure
C = Household Consumption
I = Total Investment
G = Government Expenditure
X = Net Exports (which would be zero in case of Closed Economy as there won't be any Import or Export)
Equilibrium level of Income is said to be one at which AE is equal to Aggregate Income (Y).
Consumption Equation is represented as, C =CA + MPC (Y - TP)
Where,
C = Total Consumption
CA = Autonomous Consumption, i.e., amount of consumption ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.