Planned expenditure and income

The following table shows consumption (CC), investment spending (II), and government purchases (GG), in a hypothetical economy for various levels of income. Also assume that there is an income tax rate of 25%, that base consumption is $50 billion, and that the MPC is 0.667, or 2/3.

This economy is closed, with no international trade, therefore net exports are equal to zero and should not be considered.

Use the given information to fill in disposable income, consumption, and planned expenditures in the following table.

Income: Real GDP	Disposable (After Tax) Income	CC	IpIp	GG	Planned Expenditures
(Billions of dollars)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)	(Billions of dollars)
0	0	50	50	100
100			50	100
200			50	100
300			50	100
400			50	100
500			50	100

The following graph shows income (real GDP) on the horizontal axis and planned expenditure on the vertical axis.

Use the black line (plus symbol) to plot a 45-degree line on this graph. Then use all 6 of the the blue points (circle symbols) to plot the planned expenditure line for this economy. Be sure to plot these points at the income levels listed in the table (0, 100, 200, 300, 400, and 500 billion dollars).

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

45-Degree LinePE LineEquilibrium Income01002003004005006006005004003002001000PLANNED EXPENDITURES (Billions of dollars)INCOME (Billions of dollars)

On the previous graph, use the black point (plus symbol) to indicate the equilibrium income.

Note: Dashed drop lines will automatically extend to both axes.

Suppose income is currently $500 billion. This would mean that , which would send a signal to firms to .