Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. 1. If the US has autonomous aggregate spending of $200 billion, consumes 70% of every dollar of income (MPC), plans to invest $100 billion.

1. 1. If the US has autonomous aggregate spending of $200 billion, consumes 70% of every dollar of income (MPC), plans to invest $100 billion. Assume there are no taxes, so Income (Y) = Disposable income (Yd)

a. Set up the Aggregate Expenditure function including the consumption function.

Using Y = 0 to 2,500 billion in 250 billion increments

2.  a. At what point does the US economy break-even or reaches a steady state where Iu = 0.

b. Graphically demonstrate your answer.

Y=Yd

AAE

MPC

Ip

AE

Iu

0






250






500






750






1000






1250






1500






1750






2000






2250






2500







2.

1. If the US decides to save more and consume less, such that it now consumes only 60% of its disposable income:

2. Set up the Aggregate Expenditure function including the consumption function.

Using Y = 0 to 2,500 billion in 250 billion increments

3. At what point does the US economy break even or reach a steady state where Iu = 0.

4. Graphically demonstrate your answer.

5. Explain fully how this relates to the paradox of thrift. (Include in your answer what the paradox of thrift is and a comparison of 1b and 2b) Is the nation better off from consuming less? (Does Y go up or down?)

Y=Yd

AAE

MPC

Ip

AE

Iu

0






250






500






750






1000






1250






1500






1750






2000






2250






2500







Step by Step Solution

3.28 Rating (160 Votes )

There are 3 Steps involved in it

Step: 1

1 Since there are no taxes T in the system disposable income Yd YT Y Aggregate expenditure Autonomou... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Econometric Analysis

Authors: William H. Greene

5th Edition

130661899, 978-0130661890

More Books

Students also viewed these Economics questions

Question

At what point does conflict between group members become unethical?

Answered: 1 week ago