Figure 4: Macroeconomics data from Keynesian school

Keynesian school Macroeconomics data Values

Autonomous consumption $250 million

Investment expenditure $200 million

Government expenditure $360 million

The marginal propensity to consume 0.65

A flat tax rate on income 0.3

Autonomous export $200 million

Autonomous import $320 million

Assumptions Import is autonomous only

Prices are fixed in LOVE Republic

Use the Macroeconomics data from the Keynesian school (Figure 4) in LOVE Republic and

calculate the following questions (give your answers in million where applicable):

a. What is the consumption function in LOVE Republic? (2 Marks)

b. What is the equation for the AE (Aggregate Expenditure) curve in LOVE Republic?

(3 Marks)

c. Calculate the equilibrium expenditure in LOVE Republic? (3 Marks)

d. Calculate the multiplier in the LOVE Republic economy? (3 Marks)

e. If the government of LOVE Republic runs a public work programme by spending

$ 100 million more in the economy, what is the change in the equilibrium expenditure?

(3 Marks)