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 $)
470	270	130	80	30
570	350
670	430
770	510
870	590

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

Instructions: Enter the values into the table above. (Do this before questions)

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

Instructions: Enter the values into the table above. If the value is negative, then be sure to enter a minus sign.

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

Instructions: Enter a number rounded to the nearest whole number.

c. Suppose that planned investment increases by $20 billion. What is the new equilibrium level of aggregate expenditure in this economy?

Instructions: Enter a number rounded to the nearest whole number.

d. What is the marginal propensity to consume in this economy?

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

e. What is the expenditure multiplier in this economy?

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

Answer 1

	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 $)	MPC
	470	270	130	80	30	-40
	570	350	130	80	30	-20	0.8
	670	430	130	80	30	0	0.8
	770	510	130	80	30	20	0.8
	870	590	130	80	30	40	0.8
	MPC = Change in Consumption/Change in AE
	Unplanned Investment = AE - Sum(Cons, Plann I, Govt Spending, NX)
	At AE=670, the economy is in equilibrium with unplanned I = 0
	If I is increased by 20
	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 $)	MPC
	470	270	150	80	30	-60
	570	350	150	80	30	-40	0.8
	670	430	150	80	30	-20	0.8
	770	510	150	80	30	0	0.8
	870	590	150	80	30	20	0.8
	MPC = Change in Consumption/Change in AE
	Unplanned Investment = AE - Sum(Cons, Plann I, Govt Spending, NX)
	At AE=770, the economy is in equilibrium with unplanned I = 0
	Multiplier = (1/(1-MPC)	5