The
following diagram shows desired aggregate expenditure for the economy of Sunset
Island. The AE curve assumes a net tax rate (t) of 10 percent, autonomous
exports of $25 billion, and a marginal propensity to import (m) of 15 percent
a. What is
the level of desired investment expenditure (I)?
b. What is
the level of government purchases (G)?
c. What is
the autonomous portion of consumption?
d. What is
total autonomous expenditure?
e. Starting
from equilibrium national income of $250 billion, suppose government purchases
decreased by $25 billion. Describe the effect on the AE curve and on
equilibrium national income.
f. Starting
from equilibrium national income of $250 billion, suppose the net tax rate
increased from 10 percent to 30 percent of national income. Describe the effect
on the AE curve and on equilibrium national income.
g. Starting
from equilibrium national income of $250 billion, suppose investment increased
by $50 billion. Describe the effect on the AE curve and on equilibrium national
income.
h. Starting
from equilibrium national income of $250 billion, suppose the marginal
propensity to import fell from 15 percent to 5 percent of national income.
Describe the effect on the AE curve and on equilibrium national income.