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    Planned or Aggregate Expenditure

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    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 new equilibrium income?
    d. What level of government purchases is needed to achieve an income of 1,600?

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    Solution Preview

    Please see attachment.

    Planned or Aggregate Expenditure = AE = C + I + G, where
    C = Consumption Function
    I = Planned Investment
    G = Government Purchases

    C = 200 + .9 (Y-T), where Y = ...

    Solution Summary

    Planned and aggregate expenditure is reviewed.