Question

Consider the data presented in the table:

Actual aggregate expenditure or output (Y) (billions of $)	Consumption (C) (billions of $)	Planned investment (billions of $)	Government spending (G) (billions of $)	Net exports (NX) (billions of $)	Unplanned investment (inventory change) (billions of $)	Future output tendency
430	230	130	90	40		(Click to select)  increase  decrease  same
530	300					(Click to select)  increase  decrease  same
630	370					(Click to select)  increase  decrease  same
730	440					(Click to select)  increase  decrease  same
830	510					(Click to select)  increase  decrease  same

a. What is the marginal propensity to consume for households in this economy?

Instructions: Enter a numerical value rounded to two decimal places as necessary

b. Based on the assumptions of our aggregate expenditure model, fill in the columns for planned investment, government spending, and net exports.

Instructions: Enter numerical values into the table. Enter whole numbers only.

What is this type of expenditure called?

• Autonomous expenditure

• Equilibrium expenditure

• Income-dependent expenditure

• Dependent expenditure

c. For each level of actual aggregate expenditure, calculate unplanned inventory investment.

Instructions: Enter numerical values into the table. Enter whole numbers only. If the value is negative, you must enter a minus sign.

d. What is the equilibrium level of aggregate expenditure in this economy?

Instructions: Enter a numerical value rounded to two decimal places as necessary.

e. For each level of actual aggregate expenditure, label the future output tendency as “increase,” “decrease,” or “same” based on what you expect to happen to future output.

Instructions: Fill in the last column of the table.

f. At the equilibrium level of aggregate expenditure, which of the following are true?

Instructions: Click each box to empty the box and then click each box to select the correct answers. There may be more than one correct answer.

• Firms have no incentive to change the level of their output.unanswered
• Unplanned investment is positive.unanswered
• Unplanned investment is zero.unanswered
• Consumption is maximized.unanswered

This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Ne

Answer 1

(a)

MPC = Change in C / Change in Y = (300 - 230) / (530 - 430) = 70/100 = 0.70

(b)

Planned investment, G and NX are autonomously given & constant. This is called Autonomous expenditure.

Y	C	I	G	NX	Unplanned Inventory	Future Output
($ Billion)	($ Billion)	($ Billion)	($ Billion)	($ Billion)
430	230	130	90	40	-60	Increase
530	300	130	90	40	-30	Increase
630	370	130	90	40	0	Same
730	440	130	90	40	30	Decrease
830	510	130	90	40	60	Decrease

(c)

Unplanned inventory investment = Y - AE, where AE = C + I + G + NX

(d)

In equilibrium, Unplanned inventory investment = 0, so Y = AE = $630 billion

(e)

When Unplanned inventory investment > 0, Future output decreases.

When Unplanned inventory investment < 0, Future output increases.

When Unplanned inventory investment = 0, Future output is the same.

(f) In equilibrium,

• Firms have no incentive to change the level of their output
• Unplanned investment is zero