1.Suppose that in an economy with no government the aggregate expenditure function is: AE = 50+0.75Y.

2.Draw a diagram showing the aggregate expenditure function, and indicate the level of planned expenditure when income is 150.

3. In this same diagram, show what would happen to aggregate expenditure if income increased to 200.

4. What are the levels of autonomous expenditure and induced expenditure at income levels of 150 and 200.

5. In this same diagram show what would happen if autonomous expenditure increased by 20.

6.Suppose the media predicts a deep and persistent economic recession. Households expect their future income and employment prospects to fall. They cut back on expenditure, reducing autonomous expenditure from 50 to 30.

7. Re-draw the aggregate expenditure functions you have drawn in your diagrams for 6 to show the effects, if any, of this change in household behaviour.

8.Suppose the negative economic forecast also reduces induced expenditure in the economy from 0.75Y to 0.5Y. In a diagram show the effect would this have on the aggregate expenditure functions you have drawn.

9. Construct a table showing autonomous, induced and aggregate expenditure at different income levels (Y) for an economy with autonomous expenditure of 105 and induced expenditure of 0.5Y.

10. Using numbers from your table draw a diagram showing the aggregate expenditure function AE. What is the intercept of this function on the vertical axis?

11. What is the slope of the AE function, and what does the slope measure?

12. Write the equation for the aggregate expenditure function for this economy.

13. Output and income are in equilibrium when planned expenditures AE are equal to national income, Y, in other words, meaning Y = AE.

14. Suppose the AE function is AE = 175 + 0.75Y. Draw a diagram showing the aggregate expenditure function.

15. In your diagram draw the 45 line that shows all points at which national income and aggregate expenditures are equal (Y = AE).r