Consider a simple model such as the one developed in this chapter. The table to
ID: 1216821 • Letter: C
Question
Consider a simple model such as the one developed in this chapter. The table to the right shows the levels of desired consumption, desired investment and desired aggregate expenditures for various levels of actual national income. Using the information from the table, the consumption function for this economy can be written as c = + Y. (Round your response for the intercept term to the nearest whole number and for the slope term to two decimal places.) Using the information from the table, we can see that the autonomous investment expenditures are equal to $. Using the information obtained above, we can compute the desired autonomous aggregate expenditures as $ and the value of marginal propensity consume as. (Round your response for the intercept term to the nearest whole number and for the slope term to two decimal places.) Consequently, the equilibrium level of national income in this model is $. (Round your response to the nearest whole number.)Explanation / Answer
Correct Answer:
C = 200 + .9*Y
Explanation:
C
Y
200
0
2450
2500
4700
5000
6950
7500
9200
10000
11450
12500
After running a regression on above tabular data:
Autonomous investment expenditure = $300
Desired autonomous aggregate expenditure = 300+200 = $500
MPC = .9
Explanation:
Desired autonomous aggregate expenditure = Autonomous investment + autonomous consumption
MPC = Change in consumption / change in income = (4700 – 2450)/(5000 - 2500) = .9
MPC is also identified by the slope of Y.
Equilibrium level of national income = $5000
Explanation:
Equilibrium level of GDP is achieved when aggregate expenditure in a particular period becomes equal to the GDP in the same period.
C
Y
200
0
2450
2500
4700
5000
6950
7500
9200
10000
11450
12500