6. The following graph shows the aggregate expenditure functions of an economy.

a. Suppose the economy is originally at the equilibrium level of income at $2000. What would be the change in inventories when the aggregate expenditure function shifts from E1 to E2?
How does the unplanned change in inventory explain the increase in the equilibrium level of income?

b. Calculate the multiplier.

c. Supposing both marginal propensity to invest and marginal propensity to import equal zero, calculate the marginal propensity to consume.

Transcribed Image Text:

E E2 E 1800 1300 45 2000 3000 Y