QUESTION 1

1. If the US has autonomous aggregate spending of $200 billion, consumes 70% of every dollar of income (MPC), plans to invest $100 billion. Assume there are no taxes, so Income (Y) = Disposable income (Yd)
1. Set up the Aggregate Expenditure function include the consumption function.

Using Y = 0 to 2,500 billion in 250 billion increments

1. At what point does the US economy break even or reaches a steady state where Iu = 0.
2. Graphically demonstrate your answer.

Y=Yd	AAE	MPC	Ip	AE	Iu
0
250
500
750
1000
1250
1500
1750
2000
2250
2500

QUESTION 2

1. If the US decides to save more and consume less, such that it now consumes only 60% of its disposable income:

2. Set up the Aggregate Expenditure function include the consumption function.

Using Y = 0 to 2,500 billion in 250 billion increments

3. At what point does the US economy break even or reaches a steady state where Iu = 0.

4. Graphically demonstrate your answer.

5. Explain fully how this relates to the paradox of thrift. (Include in your answer what the paradox of thrift is and a comparison of 1b and 2b) Is the nation better off from consuming less? (Does Y go up or down?)

Y=Yd	AAE	MPC	Ip	AE	Iu
0
250
500
750
1000
1250
1500
1750
2000
2250
2500