1 1. 1. If the US has autonomous aggregate spending of $200 billion, consumes 70% of every dollar of income (MPC), plans to invest $100 billion. Assume there are no taxes, so Income (Y) = Disposable income (Yd) a. Set up the Aggregate Expenditure function include the consumption function. Using Y = 0 to 2,500 billion in 250 billion increments 2. a. At what point does the US economy break even or reaches a steady state where Iu = 0. b. Graphically demonstrate your answer. Y=Yd AAE MPC Ip AE Iu 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 QUESTION 2 1. 1. If the US decides to save more and consume less, such that it now consumes only 60% of its disposable income: 2. Set up the Aggregate Expenditure function include the consumption function. Using Y = 0 to 2,500 billion in 250 billion increments 3. At what point does the US economy break even or reaches a steady state where Iu = 0. 4. Graphically demonstrate your answer. 5. Explain fully how this relates to the paradox of thrift. (Include in your answer what the paradox of thrift is and a comparison of 1b and 2b) Is the nation better off from consuming less? (Does Y go up or down?) Y=Yd AAE MPC Ip AE Iu 0 250 500 750 1000 1250 1500 1750 2000 2250 2500