Question

1. Given the following table, answer the following questions Personal consumption expenditure C 800 Government expenditure G 400 Taxes T 420 Export X 200 Import M 300 Gross Domestic Product Y 1800 a. The value private saving is ________ b. The value of public saving is ________ c. The value of national saving is ________ d. What is the value of gross private investment Ig? ________ e. What is the amount of investment financed by national saving? ________ f. What is the amount of investment borrowed or lent to the rest of the world? __ 2. Given the following two data for country ABC (data in billion) C = 120 + 0.6Y, G = 10 and I = 30 a. The value of autonomous consumption is ________ b. The value of autonomous expenditure is ________ c. The value of MPC and MPS ________ d. The value of equilibrium consumption is ________ e. The value of equilibrium expenditure is ________ f. The size of expenditure multiplier is ________ g. Write the saving function ________ h. Write the aggregate expenditure function ________ i. Draw consumption function curve, label your graph j. Draw Aggregate expenditure graph. Label your graph k. Find new equilibrium expenditure if autonomous investment increases by $20 billion l. Show the new equilibrium calculated in (l) in your graph of AE function.

Answer 1

C = 800

G = 400

T = 420

X = 200

M = 300

Y = 1800

a)

Private saving = Y - T - C = 1800 - 420 - 800 = 580

b)

Public Saving = T - G = 420 - 400 = 20

c)

National Saving = Y - C - G = 1800 - 800 - 400 = 600

(Private saving + Public Saving)

d)

Gross Private Investment.= I = Y - C - G - (X -M) = 1800 - 800 - 400 - (200 - 300) = 700

e)

600 out of 700 is financed by national saving.

f)

100 out of 700 is borrowed from rest of the world.

2

Y = C + I + G

Y = 120 + 0.6Y + 30 + 10

0.4Y = 160

Y = 160/0.4 = 400

a)

Autonomous consumption = 120

b)

Autonomous expenditure = 120+30+10 = 160

c)

Y = C + S + T

If T = G (Assumption)

Then T = 10

S = Y - C - T = 30

MPS = S/(S+C) = 30/(30 + 120) = 0.2

MPC = C/(S+C) = 120/(30+30) = 0.8

d)

C = 120 + 0.6*Y = 120 + 0.6*400 = 360

e)

Y = 400

f)

Expenditure multiplier is 0.6/(1 - 0.6) = 1.5

(0.6 comes from the coefficient of the given equation)

g)

C + S + T = Y

S = Y - C - T

h)

Y = C + I + G