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effect of the multiplier

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Suppose AE = 0 + 0.75Y

a. Draw the aggregate expenditure curve and indicate the equilibrium income.

b. What are the slope and the vertical axis intercept of the curve?

c. What is the multiplier?

d. What is the effect of $100 increase in autonomous exports on equilibrium income? Demonstrate your answer graphically.

*Please label the answers with the corresponding letters (a,b,c, and d) for easier understanding.

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Solution Preview

Suppose AE = 0 + 0.75Y

a. Draw the aggregate expenditure curve and indicate the equilibrium income.

Solution:

Fig-1

The AE line is given as AE = 0 + 0.75Y. Here the intercept is zero, so the AE line is passing through the origin. This is shown graphically in shown in fig-1.
The intersection of AE with the 45-degree line shows equilibrium level of income. The AE line is passing through the origin. Again 45-degree line is ...

Solution Summary

The effect of the multiplier and other questions are practiced.

$2.19