Question
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
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Step: 1
1 Since there are no taxes T in the system disposable income Yd YT Y Aggregate expenditure Autonomou...Get Instant Access to Expert-Tailored Solutions
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