Q3. Imagine the economy is defined by the consumption function of C = 140 + 0.9 (Yd) where 140 is autonomous consumption, 0.9 is marginal propensity to consume, and Yd is disposable income (after taxes) and Yd=Y-T, where Y is national income (or GDP) and T=Tax Revenues=0.3Y (0.3 is the avg. income tax rate). To find the macro equilibrium use the following equation Y = C + I + G + (X - M). Where C=140 + 0.9(Yd), I=400, G=800, X=600, M=0.15Y. What is the aggregate expenditure for this economy? [Remember Y=AE]

a.Y = 3079

b.Y = 4042

c.Y = 3730

Q4. Which of the following is a cause for a recessionary gap?

a.Consumption is on the decline.

b.Government spending has increased.

c.Prices are low.

Q5. Which following factor is powerless to influence autonomous expenditure?

a.Net exports

b.National income

c.Investments