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Question

1. (6 points) The spreadsheet lists the components of aggregate planned expenditure in Tanganica. The numbers are in billions of cloves, the currency of the country.

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 60 60 90

In Tanganika, what is:

a. Autonomous expnditure?

b. The marginal propensity to consume?

c. Aggregate planned expenditure when real GDP is $200 billion?

d. Happening to inventories if real GDP is $200?

e. Happening to inventories if real GDP is $500?

f. The multiplier in Tanganica?

Answer 1

This is simple Keynesian cross model

a)

Ae=50

b)

MPC=0.6

c)

AE=C+I+G+E-M= 170+50+60+60-30=310

d)

Inventories should fall

e)

Inventories should increase

f)

Simple multiplier=ΔY/ΔA=1/(1-MPC)= 1/(1-0.6)=1/0.4=2.5