is worth3 Use the following information to answer the next nine questions. Each
ID: 1127462 • Letter: I
Question
is worth3 Use the following information to answer the next nine questions. Each points fill-in-the-blank If your answer is in decimal form, enter it with 2 decimal places. For example, if your answer is 4, enter it into the fill-in-the-blank as 40, or if your answer is 1.4, enter it into the fill-in-the-blank as 1.40.If there are no decimals in your answer, you will simply enter the number, so if your answer is 2, enter 2 with no decimals. Do not use commas. Suppose the economy is characterized as follows: AE=C+I+G+(X-M) C- 400 +.75(Y-T)-30 (r) 1-500-50(r) G-400 X-M=-25 T 80 r=5 Price level P is fixed at 1(P-1) Use the information above to get expressions for the consumption function and the AE equation. The vertical intercept for the consumption function isExplanation / Answer
First question is answered below
8.
Vertical intercept of consumption function: 400
It is the part of consumption function independent of income.
9.
Slope of consumption function: 0.75
It is the proportion of consumption dependent on income
10.
AE = C+I+G+X-M
AE = 400+0.75(Y-80)-30(r) + 500-50(r) + 400 - 25
AE = 1300 + 0.75Y - 60 - 80r - 25
AE (Y) = 1215 + 0.75Y - 80r
Y* = 4860 - 320r
Thus, vertical intercept of AE curve = 4860
11.
For equilibrium, substitute r = 5 in AE function
AE = 4860 - 320(5)
AE (Y*) = $3260
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