3,000 2,500 300 500 200 4,000 3,250 300 500 200 5,000 4,000 300 500 200 6,000 4,

Question

3,000 2,500 300 500 200

4,000 3,250 300 500 200

5,000 4,000 300 500 200

6,000 4,750 300 500 200

7,000 5,500 300 500 200

8,000 6,250 300 500 200

A) What is the marginal propensity to consume implicit in these data?

B) Plot a 45 degree line, and Then use the data to draw an aggregate expenditure line.

C) What is the equilibrium level of real GDP? (Illustrate it on your diagram)

D) Suppose that investment spending increases by 250 at each level of income. What would happen to equilibrium GDP?

Explanation / Answer

Solution: First values: Y=3'000 ; C=2'500 Second last: Y=7'000 ; C=5'500 So =>?Y = (7'000 - 3'000) = +4'000 and =>?C = (5'500 - 2'500) = +3'000 Applying the formula: MPC = 3'000 / 4'000 = 3/4 = 0.75 Ans Please rate

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