Disposable income Consumption

0 75

100 150

200 225

300 300

400 375

1.Using the above table,

a.Compute the marginal propensity to consume

b.Define Marginal Propensity to Consume (give the definition).

c.At what level of disposable income does saving equal zero?

2.If MPS= .45, what is MPC?

3.In the above graph, C is the consumption function.What is the level of autonomous consumption in this economy?

Real GDP C I G X M

2000 1460 200 300 200 80

2100 1530 200 300 200 90

2200 1600 200 300 200 100

2300 1670 200 300 200 110

4.Using the above table, what is the level of aggregate planned expenditure when Real GDP is equal to 2300?

5.Using the table from the previous question,

a.What is the equilibrium level of real GDP?

b.Define equilibrium expenditure.

Real GDP Aggregate Expenditure

6000 6200

7000 7000

8000 7800

9000 8600

6.Using the above table,

a.Calculate the slope of the AE curve.

b.Calculate the Multiplier

7.If there are no taxes or imports and the MPC is .7, what is the value of the multiplier?

8.If the multiplier is 4 and government expenditures decrease by $80 billion, what will happen to real GDP?

9.If the slope of the AE curve is .9 and investment increases by $80 million, by how much will equilibrium expenditure increase?

10.Using the above graph

a.At what level of real GDP does equilibrium expenditure occur?

b.At real GDP of $400 million, what is the relationship between aggregate planned expenditure and real GDP?

c.What will happen to firms' inventories?

d.What will firms do to production?