3.4

The distinction between autonomous and induced expenditure is important for the determination of equilibrium real GDP. Assume that the marginal propensity to consume is 0.6, the marginal propensity to import is 0.1 and autonomous aggregate expenditure is 10. Please make sure your final answer(s) are accurate to the nearest whole number.

a)What is the equation for the aggregate expenditure function under these assumptions?

AE =

b)Draw the aggregate expenditure function in the income-expenditure 45^oline graph.