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In an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion, and the marginal propensity to consume is 2/3. a....

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In an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion, and the marginal propensity to consume is 2/3. a. Plot the aggregate consumption function and planned aggregate spending. b. What is unplanned inventory investment when real GDP equals $600 billion? c. What is Y*, income–expenditure equilibrium GDP? d. What is the value of the multiplier? e. If planned investment spending rises to $450 billion, what will be the new Y*?

 

Answered Same Day Dec 26, 2021

Solution

Robert answered on Dec 26 2021
127 Votes
(a) Aggregate consumption: C = 250 + (2/3) GDP
Aggregate expenditure: AEplanned= C + Iplanned=600 + (2/3) GDP
(b) Unplanned inventories = GDP-AEPlanned
AEPlanned = 600 + (2/3) GDP = 600 + (2/3) 600 = 1000 (since GDP=600)
The unplanned inventory investment = 600 – 1000 = -400 (-$400...
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