Below, you are provided with an equation for the macroeconomic consumption function and values for planned investment spending and government spending. You will use this information to identify the aggregate expenditure line in a closed economy. Additionally, you will graph the aggregate expenditure line and relate its slope to the marginal propensity to consume.

The macroeconomic consumption function is:

C = 3,000 + 14 Y

Suppose that planned investment spending is equal to $2,000, that government spending is equal to $1,000.

Part 1: Each row of the table below provides a combination of disposable income and consumer spending that lies on the macroeconomic consumption function. Using the macroeconomic consumption function, complete the table below.

Disposable Income (Y)

Consumer Spending (C)

$0

$500

$1,000

$1,500

$2,000

$2,500

Part 2:Construct the macroeconomic consumption function by plotting (and connecting) the points that are provided in the table above. Label this line AE1.

Part 3: Referring to the macroeconomic consumption function that you constructed forPart2, what is the marginal propensity to consume?

Part 4: Each row of the table below provides a combination of disposable income and aggregate expenditure that lies on the aggregate expenditure line. Using the information provided above, complete the table below.

Disposable Income (Y)

Consumer Spending (C)

$0

$500

$1,000

$1,500

$2,000

$2,500

Part 5: On the same graph that you constructed forPart 2, construct the aggregate expenditure line by plotting (and connecting) the points that are provided in the table above. Label this line AE2.